PCAOB Requests Comment on Draft Strategic Plan

The Public Company Accounting Oversight Board (PCAOB) recently released for public comment a draft five-year strategic plan for 2022-2026, setting forth targeted objectives that are oriented around four primary goals: (1) modernizing standards, (2) enhancing inspections, (3) strengthening enforcement, and (4) improving organizational effectiveness.  Much of the work to accomplish the proposed objectives is already underway, as PCAOB Chair Erica Williams noted in her comments on the draft plan.  

Highlights with respect to each of the four primary goals include:

1. Modernizing standards. Many of the PCAOB’s current standards have not been changed since 2003 and need to adapt to keep pace with developments in auditing and the capital markets.  As a start toward this goal, in May, the PCAOB released its updated standard-setting and research projects agenda, which Chair Williams described as “one of the most ambitious standard-setting agendas in the PCAOB’s history.”  The standard-setting agenda seeks to update over 25 standards, with a mix of short-term and mid-term projects.  The short-term projects list contemplates several proposals by the end of 2022, including:
   
   
   • Enhancing the existing requirements and imposing a more uniform approach regarding the lead auditor’s responsibilities, particularly the supervision of other auditors¹;
   • Strengthening PCAOB standards regarding audit firm quality controls;
   • Changes to the auditor’s consideration of possible noncompliance with laws and regulations to integrate a more scalable, risk-based approach; and
   • Scoping considerations for possible updates to interim attestation standards that have not been materially amended since adoption in 2003

   Short-term projects slated for proposal in 2023 include:

   • Modifications to the auditor’s evaluation and reporting concerning a company’s ability to continue as a going concern; and
   • Re-proposed changes to the auditor’s confirmation process to account for changes in technology and updated risk assessment standards.
   Mid-term projects include a number of other potentially consequential changes, including with regards to the auditor’s use of substantive analytical procedures, the auditor’s responsibilities for addressing fraud in a financial statement audit, and applicable ethical and independence requirements.
2. Enhancing inspections. Inspecting registered public accounting firms’ audits and quality control systems is one of the important tools available to the PCAOB to protect investors.  Among the objectives set forth to enhance inspections, the PCAOB plans to continue making publicly available information that is useful to stakeholders and to do so on a more timely basis.  As for releasing “useful guidance,” the PCAOB’s “focus is to provide audit committees, auditors, and others with additional context and relevant information on [the PCAOB’s] inspections to further their understanding and support their efforts to proactively improve audit quality.” 
3. Strengthening enforcement. The PCAOB’s call for stronger enforcement has taken hold under its current board, four of the five members of which have been added since November 2021 (see our prior post), with the PCAOB’s average penalty against individuals and firms since January 2022 increasing by more than 65% compared to the last five years.  As stated in the proposed strategic plan, the PCAOB “will take a more assertive approach to bringing enforcement actions.”  Moreover, the PCAOB plans to continue to coordinate enforcement work with other regulators in the U.S. and abroad, and it “will increase transparency in settled enforcement actions by more frequently naming the issuers or broker-dealers whose audits are implicated and by increasing transparency around penalties.”
4. Improving organizational effectiveness.  Central to this goal is improving the PCAOB’s internal processes and the experience for its employees.  In addition, the PCAOB plans to enhance stakeholder engagement, including with “investors, investor advocates, audit firms and individual auditors, audit committee members, financial statement preparers, other regulators in the U.S. and abroad, Congress, and academics as we pursue our mission.”  As part of this effort, the PCAOB re-established its advisory groups earlier this year and hired an Investor Advocate and Associate Director for Stakeholder Relations. 

Public comments on the draft strategic plans are due by September 15, 2022.