Statement on Proposed 2015 Budget and Strategic Plan

The 2015 budget and related strategic plan are the result of considerable effort and thought by board members and senior programmatic staff.

I want to express my appreciation for the efforts of our Chief Administrative Officer, Suzanne Kinzer and our Chief Financial Officer, Amy Hargrett, who are both new in their roles this year. I would also like to thank Budget Officer Jim Hearn, Yoss Missaghian and Bobbie Rose from our budget office.

Since November 2013, when the Board last updated its five-year strategic plan, we have made substantial progress on the objectives and initiatives described in our strategic plan. This new plan and the 2015 budget together will allow us to redouble our efforts on a number of key strategies to achieve our mission.

In particular, the new plan and budget will allow us to deepen the PCAOB's use of data, information technology and economic analysis in standard-setting and other activities. That capacity will promote more fluid interaction among the PCAOB's programs in order to better leverage data and insights obtained through its programs.

We will also continue to expand the interim Broker-Dealer Audit Inspection Program while working to establish the permanent program.

Let me say a word about economics. In November 2013, we formed a Center for Economic Analysis. We have begun to staff the Center with both permanent staff and research fellows, and we are now poised to deepen our use of economic analysis in all our programs, particularly in the area of standard-setting, as well as to spur economic research on the role of auditing in capital markets and capital formation.

Economic considerations underlie the audit, but we need to know more about the levers that move auditor incentives. Last week, a meeting of our Standing Advisory Group heard from panels of academics, auditors and forensic experts on the general topic of the relationship of the audit and the auditor to fraud — detection and prevention. The auditor incentives (and disincentives) were discussed in detail. The slides of those presentations went up on our website today. That SAG meeting was a direct response to what we heard as a growing public interest in deeper study by regulation of the conditions that spawn fraud, the pressures auditors face, and the possible levers to counter those pressures.

Regulators need to be mindful of the economic impact of their own actions. For example, I am mindful that new audit procedures and quality control measures increase cost, which may be passed on to other market participants. Regulators need to know these and other economic effects, in order to determine whether and what actions may most effectively and efficiently meet stated objectives. Economics provides us a framework for that critical thinking. It prompts us to consider alternatives, to maximize the efficiency of our actions.

A near-term focus in 2015 will be further integration of economic analysis into the PCAOB's programs and further improvements in our standard-setting program. We are now in a position to reflect upon our more than ten years of experience in setting auditing standards and refine our processes to achieve the most effective outcomes.

For example, our new tools in economics will help us build a program to conduct post-implementation review of standards. We will also look for ways we can build more data collection and analysis into our processes.

To this end, we have already begun to use new outreach techniques to gather information earlier in our standard-setting process, through the staff consultation papers. We started this past summer with an OCA staff consultation paper to seek public input on the need and alternatives to address problems in auditing fair value estimates. That paper led in short order to a thought-provoking meeting of our Standing Advisory Group, in early October, to explore questions raised in the paper with outstanding panels of experts from a variety of fields. We can expect additional consultation papers soon on two more critical auditing topics — the going concern assumption and use of specialists.

We also need to make good use of our own, internal information, including information gleaned from the nearly 300 inspections and numerous investigations we will conduct next year, both in the U.S. and abroad, as well as our risk assessment and other oversight programs. With the help of empirical skills from staff in the Center, I'm hopeful that we will be able to develop a better sense of the baseline in practice, which will in turn help us determine where we need to focus on compliance and where we should lift the standard for everyone.

2015 will bring more outreach to audit committees, and more attention to the means of helping them be effective in overseeing the audit. 2015 will also see a concept release on audit quality indicators. We have great expectations of 2015.

Finally, I remain hopeful that early in 2015 we will achieve greater transparency in execution of the audit, through publication of engagement partner identity and other participating firms.

I am immensely proud of the PCAOB staff for their creativity in developing new techniques to bring to bear in their work, as well as their commitment to identifying the most effective ways to protect investors.

The 2015 Budget is lower than our 2014 Budget, reflecting the challenges we have faced in hiring. The 2015 Budget provides for a conservative increase in staff, primarily in inspections, in light of the hiring challenge. But the budget also provides our new administrative leadership with the resources they need to refresh and upgrade our human resources, finance, and facilities functions, to bring us to a more sustainable model.

Given all the work and support that has gone into the budget, I am comfortable that it is appropriate and should be submitted to the SEC for its approval.