Statement on the Board’s 2024 Budget and 2022-2026 Strategic Plan

Remarks as prepared for delivery

Good morning.

(First, I also want to join my fellow Board members in welcoming George Botic to the Board.)

Today, is an important day for the Board – a day where Chair Williams, my fellow Board members, Christina Ho, Tony Thompson, and George Botic, and I look ahead and set out a future-focused vision for the Public Company Accounting Oversight Board (PCAOB ).

With that in mind, our 2024 Budget aligns our strategic priorities with the resources necessary for that vision.

Congress, in creating the PCAOB, set forth a direct and singular statutory mission:

“[T]o oversee audits…in order to protect the interests of investors and further the public interest in the preparation of informative, accurate, and independent audit reports.”

Not only does the statutory clarity of the PCAOB’s mission focus the Board’s authority, but it also frees the Board from juggling and balancing clashing priorities. We can maintain a clear focus.

And the past two years have demonstrated, because actions speak louder than words, that the Board is relentlessly focused on audits and the interests of investors.

As we all know, investors and the public in general place an immense amount of trust in independent auditors. And Congress placed an immense amount of trust in the PCAOB to oversee the audits of these independent auditors.

Representative Michael Oxley (co-author of the Sarbanes-Oxley Act) once succinctly explained why this matters: 

“We often think of money as the currency of a free market system, but in truth the system rises and falls on the confidence of its investors.”¹

While it is true that an auditor’s report may only be a few lines, is fairly standardized, and rarely will include a “qualified opinion,” the auditor’s report matters. In fact, it matters a great deal.

In today’s fast-paced, globally, and digitally connected world, companies execute complex transactions in a dynamic and constantly evolving environment. A seemingly incessant flow of geopolitical and economic uncertainties adds to the complexity.

Nobody said that conducting an audit was easy.

What goes on behind the scenes when these publicly listed companies or registered broker dealers are audited can involve scores of auditors, and millions of dollars in audit fees. Independent auditors use the tools of professional judgement and skepticism to assess and address the risks of material misstatement in this complex environment. This can entail tens of thousands of hours of gathering sufficient and appropriate audit evidence from detailed conversations, observations, confirmations from relevant third parties, and other procedures. After amassing enough audit evidence, the auditor then forms a conclusion, the Auditor’s Report.

In sum, the audit is complicated, and the audit process is opaque to the public.

But importantly, what goes on behind the scenes of an audit is explicitly the Board’s mission, and it is governed by PCAOB auditing standards.

Last year, the Board adopted a Strategic Plan that, candidly raised some eyebrows. Our plan involved an assessment of our regulatory programs and the conclusion that, simply put, we could do better at fulfilling our investor-protection mission through a concentrated focus in four critical areas: 

• Updating and Modernizing the Responsibilities of the Auditor;
• Evaluating and Reporting on Whether Auditors Are Fulfilling Their Responsibilities;
• Preventing and Deterring Future Violations by Strengthening our Enforcement and Disciplinary Program; and
• Driving Organizational Effectiveness and Empowering our Employees

Updating and Modernizing the Responsibilities of an Auditor

Let me start with updating and modernizing the responsibilities of the auditor. In 2003, the PCAOB inherited the auditor’s responsibilities as set out in auditing standards written by the AICPA’s (American Institute of Certified Public Accountants). Many of the standards had been left untouched and had been written for an era dominated by fax machines, not fast-paced, global business (about 30 – 40 years ago).

The Board challenged the staff with updating those standards, and the staff responded with an unprecedented standard-setting agenda with 10 short-term projects.

Let me illustrate one example:

In December 2022, the Board proposed changing the auditor’s responsibilities when obtaining audit evidence from third parties (confirmation), a standard nearly 30 years old. Approximately nine months later, the Board adopted an auditing standard setting forth new responsibilities for auditors, including a requirement to obtain audit evidence for a company’s cash and cash equivalents directly from the bank.

Earlier this month, one commenter explained the importance of the Board’s new standard to the SEC:

“We believe the proposed amendments accurately reflect changes in technology, communications, and business practices and will enhance the auditor’s ability to identify fraud in certain circumstances and improve overall audit quality.” ²

Other projects on the agenda relate to much needed updates to the auditor’s responsibilities that were set decades ago, including, among others, responsibilities for an audit firm’s system of quality control (over 30 years old) and the general responsibilities that fundamental to every audit (originating in the 1940s through the 1970s).

Not all the projects relate to legacy auditing standard:  One proposal includes amendments to address the auditor’s responsibilities when Designing and Performing Audit Procedures that Involve Technology-Assisted Analysis of Information.

Evaluating and Reporting on Whether Auditors Are Fulfilling Their Responsibilities

We also are making significant changes to how we evaluate and report on whether auditors are fulfilling their responsibilities as set out in PCAOB standards. A few months ago, we announced major revisions to our inspection reports, including providing transparency of violations never previously reported. We have also put on our website an interactive means for obtaining and comparing information about a PCAOB inspection of an audit firm.

Preventing and Deterring Future Violations by Strengthening our Enforcement and Disciplinary Program

As far as our goal of preventing and deterring future violations, a credible enforcement and disciplinary program with real teeth can be a powerful tool to garner compliance with current standards and to deter future violations.

The Board is encouraging the enforcement staff to use every tool in their toolbox, such as meaningful monetary sanctions and message cases to alert and encourage audit firm compliance.

Driving Organizational Effectiveness and Empowering our Employees

No regulator should shut out or deny stakeholders a seat at the table. We reimagined and reconstituted our Investor Advisory Group and Standards and Emerging Issues Advisory Group.

We are also seeking out other opportunities to listen, because the more we listen, the better we will be as audit regulators.

Lastly, without question, the Strategic Plan directly and formidably challenged the PCAOB staff. And, over that last year, the PCAOB staff has unleashed its true potential.

One of the most important matters involved conducting inspections in connection audits performed in mainland China and Hong Kong, which the PCAOB was able to do for the first-time last year.

Conclusion

I am pleased to support the PCAOB Budget for 2024, which sets out the allocation of resources and the continued direction in fulfilling our mission.

I want to thank the PCAOB staff, including Jim Hearn, our Budget Officer, Yoss Missaghian, Alfredo Azocar, Marcia Saavedra, Holly Greaves, and Jamey McNamara.

I also want to acknowledge the SEC staff’s frequent communication on the budget and other areas of professional practice. The budget process begins early each year and involves a team from the SEC and a team from the PCAOB. This is just one example of the Commission’s general oversight authority.

Thank you.