PCAOB Announces 2019-2023 Strategic Plan

On November 19th, the Public Company Accounting Oversight Board (PCAOB) approved its 2019-2023 Strategic Plan, as well as its fiscal 2020 budget of $284.7 million. The plan, which guides the PCAOB’s operations and serves as the foundation of the budget, was favored unanimously by the board.

The announcement of the strategic review, which focuses heavily on improvements to their internal processes and operations, couldn’t have come at a better time, considering the increased negative attention surrounding the PCAOB lately. A recent Wall Street Journal (WSJ) article states “the regulator has issued 27% fewer audit-inspection reports this year, board data show, as senior staff positions remain unfilled for months,” suggesting the PCAOB has “slowed their work.”

However, despite the criticism, PCAOB Chairman William D. Duhnke remains optimistic, saying,

The PCAOB has four primary duties:

• Register public accounting firms that prepare audit reports for issuers, brokers, and dealers
• Establish or adopt auditing and related attestation, quality control, ethics, and independence standards
• Inspect registered firms’ audits and quality control systems
• Investigate and discipline registered public accounting firms and their associated persons for violations of specified laws, rules, or professional standards

Several key factors affect the PCAOB’s strategic outlook, including the need for further improvement in the quality of audit services, disruptive technological changes, and stakeholder engagement and communications. These are the same factors identified in last year’s strategic plan, as the PCAOB believes that, based on the ongoing internal review and external feedback, these are the correct factors to direct their efforts.

Interestingly, very little has changed since last year’s Strategic Plan (2018-2022). For the second consecutive year, the plan is described in exactly 15 pages, a dramatic decrease from the 59 pages in the 2017-2021 plan and 52 pages in 2016-2020’s. Looking back at older plans, it seems the two most recent documents dropped a few sections, including the matrix of strengths, weaknesses, opportunities, and threats, strategies, and progress and performance measures and indicators.

The five goals for 2019-2023, which have remained unchanged since last year’s strategic plan, are as follows:

According to this year’s plan, there are more than 1,800 public accounting firms currently registered with the PCAOB. Approximately 600 of these registered firms audit more than 12,000 issuers that file with the SEC. Those issuers, which include 7,402 public companies, represent roughly $42.25 trillion in global market cap.

As of September 30, 2019, there were approximately 800 PCAOB staff members. The newly approved budget of $284.7 million, a 4% increase from last year’s budget, would allow for funding of roughly 850 positions. For reference, fiscal 2019’s budget of $273.7 was projected to fund up to 838 positions.

Touching on this, the Chairman went on to say, “Finally, we have launched significant process and cultural changes within the PCAOB. We stood up our Office of Enterprise Risk Management, and hired our first-ever Chief Risk Officer, Chief Information Security Officer, and Chief Compliance Officer. We reorganized our research and analysis function, with an aim of more effectively integrating our analytical capabilities into our oversight functions. We also drafted our first-ever human capital strategic plan, and have taken numerous other actions to empower our people and improve our culture.”