Statement on the PCAOB 2017 Budget and Related Strategic Plan

I commend the members of PCAOB's budget team for their extraordinary efforts to develop a proposed 2017 Budget for the Board's consideration today. Their task was made more difficult by the Board's challenges in identifying and deliberating key strategic and program priorities that impact the budget.

The proposed 2017 Budget of $268.5 million represents a 6.2 percent increase ($15.7 million) over the amount we actually expect to spend in 2016 ($252.8 million), and a 4.2 percent increase ($10.8 million) over PCAOB's 2016 budget. It also reflects an increase of 12 staff positions over our projected staffing level at the end of 2016.

I am concerned that this budget contains continued, incremental growth without meaningful evaluations of program priorities and operations or the base starting point in terms of dollars and staffing levels used to build the 2017 budget.

My concerns about the continued growth in the budget are only slightly mitigated by the most recent sequestration order that affects PCAOB's 2017 spending. The effect of this order will be to reduce PCAOB's authorized spending level in 2017 by $1 million, forcing the Board to reduce the spending in the proposed 2017 Budget by that amount. But that still leaves the underlying strategic, operational and board governance issues unaddressed.

As a result, it is with great reluctance that I am supporting this budget. In coming to this decision, the importance of PCAOB's mission and the need to maintain the progress and continue to advance audit quality and investor protection is the overriding factor.

PCAOB's mission is critical to investor protection, and a wide range of evidence demonstrates that its programs of auditor oversight are having a positive impact on audit quality and investor confidence in the securities markets. I frequently interact with investors, audit committee members, academics, auditors, and other stakeholders about the progress made by PCAOB's core statutory functions – registration, inspections, standard-setting, and enforcement – toward achieving our mission. I believe there is a widespread view that PCAOB has had had a major impact in advancing audit quality and driving culture change in the auditing profession.

PCAOB has had a significant, positive impact on investor protection and confidence in our capital markets. Our programs and the staff leading and executing them have been instrumental in PCAOB's formative years and in achieving the progress to date.

I am encouraged that PCAOB is beginning to modernize its approaches to investing in human resources and related initiatives. We've also made progress in our other supporting programs and activities, including administration, information technology, outreach, legal, and economic and risk analyses.

As an organization, however, we have already passed the point where we need to evaluate our progress and approaches to make any adjustments needed to help ensure that PCAOB effectively achieves its mission with good stewardship of its resources.

I believe that we should hold the line on our budget until we conduct a fundamental review of PCAOB resources, program operations, and overall staffing. Several Board members have requested such an evaluation. The SEC has also encouraged the Board to take a hard look at a number of key areas, including a detailed review of personnel and other resources needed going forward to achieve our mission as we achieve a "steady state."

It is incumbent upon the PCAOB to be a good steward of its resources and to use its funding for maximum impact to achieve its mission. This Board has struggled with its own governance and oversight approaches as well as communications and information flow and needs to improve in these areas. In addition, the Board needs to enhance its budget process and related monitoring.

As I have noted in my comments on the past three years' budgets,[1] much work remains to be done for PCAOB to mature as a nimble and agile organization under a relatively stable size and structure.

Last year, I outlined a number of policy matters that our organization needs to be prepared to address, including unfinished business from our start-up years, new and emerging risks and opportunities, and operational and administrative areas in need of modernization.[2] Unfortunately, notwithstanding some incremental progress, we are not close to reaching this capacity, and we are held back by an "incremental" approach to expanding programs and operations without broader strategic and operational deliberations and evaluations. Meanwhile, the audit environment continues to evolve and we need to position ourselves to effectively respond to new developments and changing business practices.

I remain highly committed to advancing PCAOB's mission while working to enhance the effectiveness and efficiency of our programs and operations.

In closing, I want to reiterate my thanks to the staff for their efforts in developing the strategic plan and budget before us today. I would also like to thank the SEC staff for their questions, comments, and feedback during the process