Statement on the Board’s 2025 Budget and 2022-2026 Strategic Plan

Remarks as prepared for delivery

As I have said in the past, the budget goes beyond mere numbers. 

Today, my fellow Board members and I look ahead and set out a vision for the Public Company Accounting Oversight Board (PCAOB) for the next year.

Our nation’s economy is powered by our $120 trillion capital markets, where investors and issuers come together in a capital-raising environment that outpaces the banking sector by fivefold.

And since 1933, public company auditors have served a vital role in the integrity and efficiency of our capital markets. As we all know, investors and the public in general place an immense amount of trust in independent auditors. And Congress placed a coequal 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.”

So, it bears repeating: The auditor’s report matters. In fact, it matters a great deal to the investor, the issuer, and the US economy.

In 2022, the Board unanimously adopted a four-year strategic plan to enhance the relevance and reliability of the audit, and to focus on 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 the Auditor

When I first started my job as a Board Member, I was surprised to learn that the PCAOB was inspecting against standards written by the profession 30 or 40 years ago.

In 2003, the PCAOB adopted on an interim basis the auditor’s responsibilities as set out in standards written by the American Institute of Certified Public Accountants (AICPA).

Many of the standards had been written for an era dominated by fax machines, not fast-paced, global digital commerce.  In fact, many of the PCAOB auditing standards were still considered “interim” standards.

In 2022, the Board challenged the staff to bring to completion updates to those standards, most of which predated the creation of the PCAOB, which was designed to be an independent standard-setter.

For example, in 2024, the Board finally got over the finish line a standard to overhaul a firm’s system of quality control, QC1000.

The PCAOB staff, however, had long been studying and working on the matter.

Ten years before the Board’s adoption of QC1000, the PCAOB’s Standing Advisory Group (SAG) recommended that the Board strengthen the QC standards and develop a risk-based approach. 

Over the next several years, PCAOB staff

• conducted observations of firms’ QC systems;
• reviewed relevant academic research and literature;
• noted developments and trends in internal control, enterprise risk management, and quality management frameworks, all of which reflect a shift toward more proactive and risk-based approaches; and
• observed the work of other standard setters, including the International Auditing and Assurance Standards Board (IAASB)’s proposal on Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements (Proposed ISQM 1).

Work progressed with the issuance of a concept release on considerations related to any potential revision of PCAOB ‘s quality control standards in 2019.

Finally, in 2024, the staff recommended adopting a final standard that had been in making for more than a decade and informed by several rounds of public comment. 

This is an example of the work the PCAOB staff accomplished in the past year.

During the past three years, I am proud to say the Board has now updated approximately half of the interim standards and will use the allocated funding to continue this important work.

Evaluating and Reporting on Whether Auditors Are Fulfilling Their Responsibilities 

In 2022, the Board also challenged the staff to enhance both the timeliness and the informativeness of inspection reports.

This past year, the PCAOB staff inspected approximately 250 registered firms and looked at over 900 audits.

We have worked to provide more information in our inspection reports to increase their usefulness for investors, other stakeholders, and the public, including more commentary on identified deficiencies, additional charts and graphs related to firm and partner tenure, and more information on auditor independence.

The PCAOB has also taken steps to improve the informativeness and accessibility of inspection reports. In August 2024, the PCAOB website was updated to include data visualizations that summarize and compare the U.S. Global Network Firms and U.S. annual Non-Affiliate Firms’ inspection reports.

With appropriate support and funding, our staff not only has gotten rid of a backlog of reports but is getting the reports published within six months of the inspection being completed.

The Board approved all 2023 annually inspected firm inspection reports by the end of June 2024 or in six months. To put it in perspective – in the year before, it took 12 months, or until December 2023, for all 2022 inspection reports to be issued.

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

In 2022, the Board also challenged the staff to revitalize the PCAOB’s enforcement program to prevent and deter violations of the auditing standards.

In response, the staff recommended enforcement actions in response to conduct uncovered though investigations and sweeps that reinforce the importance of audit firm compliance with the Board’s standards and rules.

Although this is a tool in the toolbox that we prefer to use as a last resort, it does send a message to the entire audit marketplace that egregious violations of the auditing standards will not be tolerated.

Driving Organizational Effectiveness and Empowering our Employees

Finally, in 2022, the PCAOB reconstituted and revitalized its advisory groups.

Both the Investor Advisory Group and the Standards and Emerging Issues Advisory Group have been weighing in on how to improve the audit.

PCAOB continues to improve organizational effectiveness by meeting with different stakeholders.

This past year, the PCAOB held five forums on auditing in the small business environment and auditing broker-dealers. I had the pleasure of hosting the September 12 forum in Denver.

All this work, as outlined in our strategic plan, requires resources for staff, technology, and support. I am glad to see that the budget before us today provides that support.

Conclusion

I am proud of the work that the staff and Board have completed:

•  to modernize auditing standards,
• to adopt rules to prevent and deter misconduct,
• to enhance both the timeliness and transparency of its inspections of audit firms, and
•  to improve organizational effectiveness.

I am also pleased to support the PCAOB Budget for 2025, which sets out the allocation of resources needed to continue in the direction needed to achieve our mission.

I want to thank the PCAOB staff, including Jim Hearn, Yoss Missaghian, Mia Holland, 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. I am pleased to support the Board’s 2025 Budget.