PCAOB drafts 5-year strategic plan

By Michael Cohn for AccountingToday.com

The Public Company Accounting Oversight Board proposed a draft five-year strategic plan Tuesday aimed at modernizing standards, enhancing inspections, strengthening enforcement and improving organizational effectiveness, while asking for public comments.

The draft plan arrives as a slate of four out of five new board members settles in at the board, with the goal of stabilizing the PCAOB after years of turbulence. The new chair, Erica Williams, has been tasked by the Securities and Exchange Commission and its chairman Gary Gensler with updating the sometimes antiquated standards at the board at a faster pace (see story). 

"When it comes to modernizing our standards, earlier this year, the board announced one of the most ambitious standard-setting agendas in the PCAOB's history," Williams said in an opening statement during an open meeting Tuesday. "Now, halfway through the first year of this new board, we are already working to update more than 25 standards within eight standard-setting projects."

She also hopes to increase inspections and enforcement work by the audit overseer, and the PCAOB is still trying to get access to auditing firms in China that work with companies whose shares trade in the U.S. 

"In terms of inspections, our inspections team is constantly adjusting to be responsive to new and emerging risks across the globe — whether it's SPACs and de-SPAC transactions, cryptocurrencies, or how firms are addressing the effects of supply chain disruptions and rising costs on company operations," said Williams. "The Office of International Affairs is working day and night to reach an agreement to inspect and investigate the audits of Chinese firms completely — with no loopholes and no exceptions. And should we reach that agreement, our inspections and enforcement teams are ready to travel to China and ensure that what we have on paper works in practice."

The longest-serving PCAOB board member, Duane DesParte, who was acting chair prior to Williams' appointment, sees the importance of inspections work as well.

"Over the past 20 years, inspections have played a key role in driving continuous improvement in audit quality," he said during Tuesday's meeting. "Building on initiatives in recent years, we will continue to improve the clarity, relevance, and timeliness of information we share from our inspections, including sharing 'good practices' and other useful insights with investors, firms, and other key stakeholders, such as audit committees." 

Amid scandals involving Big Four auditing firms cheating on CPA exams, the PCAOB is also stepping up enforcement. 

"Regarding enforcement, those who break the rules should know that the PCAOB means business," said Williams. "Since January, the enforcement team has doubled our average penalty against individuals and increased the average penalty against firms by more than 65% compared to the last five years. And we are taking steps to proactively seek out wrongdoing by increasing the use of sweeps against firms where there may be a violation of our standards or rules."

The PCAOB also plans to increase its oversight of the use of technology in the audit profession, as well as making better use of technology such as data analytics by the board itself.

"I am particularly pleased that the draft strategic plan emphasizes data and technology, particularly the statement that the PCAOB will leverage both internal teams and external experts to inform our standard-setting agenda," said board member Christina Ho. "I am proud to say that I am a 'data nerd,' and I advocated for data-driven decision-making and evidence-based policymaking at the U.S. Department of the Treasury. Similarly, I believe that the use of data and technology to inform our standard-setting agenda and our programs will enhance our mission of investor protection. For example, using advanced analytics and automated techniques to convert the publicly available inspection report information into structured data will help us see changes in the nature, extent and frequency of audit deficiencies identified over the past 20 years. This data can help identify trends that inform our standard-setting agenda and our inspections program."

She believes that data from inspection reports could help investors learn more about inspection results and give them another data source to inform their decisions, as well as another avenue to continue to provide feedback on ways the PCAOB can further improve our transparency and accountability.

"As SEC Chair Gensler and our Chair Williams have recently stated, since the establishment of the PCAOB 20 years ago, our effort to drive audit quality has yielded positive outcomes — something that PCAOB employees past and present should be immensely proud of," said Ho. "The strategic plan will help guide us to build on the positive outcomes for even greater impact in the next 20 years." 

The other board members expressed support for the draft strategic plan as well.

"I support the plan's attention to our inter-related standards, inspections, and enforcement programs. I want to emphasize my belief that the choices within all these programs must look first to the interests of investors," said board member Kara Stein. "Our plan recognizes that maintaining investor confidence in financial reporting requires constant work and attention. Our employees are vitally important to this work. That is why our plan also focuses on improving the work lives of PCAOB employees."

The PCAOB was established as part of the Sarbanes-Oxley Act of 2002, and the board is looking forward to its future plans.

"I am pleased to support the recommendation to issue a request for comment on our strategic plan," said board member Anthony Thompson. "As we embark on our third decade, our strategic plan serves as a roadmap to achieving our vital mission of investor protection, and by incorporating feedback directly from our stakeholders, we can ensure that our strategic plan is not only fit for purpose, but also reflects a multitude of views, including investors, audit committees, preparers and the firms we regulate." 

The PCAOB is asking for comments on the draft plan by Sept. 15, 2022. They can be emailed to comments@pcaobus.org or sent by postal mail to the Office of the Secretary, PCAOB, 1666 K Street, NW, Washington, DC 20006-2803.  

"When it comes to improving our organizational effectiveness, we know that input from our stakeholders is vital to our mission," said Williams.