Securities Regulation Daily For the first time, PCAOB invites comments on its five-year plan
Friday, August 10, 2018

For the first time, PCAOB invites comments on its five-year plan

By John Filar Atwood

For the first time in its history, the Public Company Accounting Oversight Board is seeking public feedback on a draft of its five-year strategic plan. The plan is designed to align PCAOB programs, operations, and activities with its overall mission, and serves as both a roadmap for the Board and a basis for its annual budget.

PCAOB Chairman William Duhnke said that while an inward-facing process has served the Board well in the past, the new strategic plan is based on input from across the industry. The Board engaged a strategic planning consultant who hosted an anonymous public survey seeking views on the PCAOB’s strategic priorities. Duhnke said that the survey generated valuable feedback from investors, audit committee members and directors, academics, foreign audit regulators, auditors, and others. The Board also reached out to its employees for their views on the current state of audits and the audit profession, he added.

Three conclusions. From the extensive feedback, the PCAOB drew three primary conclusions that directed its strategic planning. First, while the quality of audit services has improved since the formation of the PCAOB, further progress is needed. To move forward, the Board believes it must regularly assess its oversight activities and operations and adjust to current and emerging risks and opportunities.

Second, advancements in technology and data collection and analytics are disrupting the financial reporting system in ways that will have significant implications for the audit profession. Third, opportunities exist for the Board to engage more effectively with investors, audit committees, and other stakeholders, and to provide them with more timely and relevant information regarding the agency’s oversight activities.

Working from these three conclusions, the PCAOB established objectives for the coming five years that include broadening its approach to driving improvement in the quality of audit services and more clearly communicating how it is driving that improvement. It also will seek to ensure that its inspections and standard-setting activities are responsive to and do not impede technological innovations.

The Board said in a news release that it also intends to engage proactively more often and directly with investors, audit committees, and other stakeholders to encourage timely conversations about the quality of audit services. Optimizing operational efficiency and reinforcing a culture of integrity, excellence, effectiveness, collaboration, and accountability are also agency objectives over the next five years.

Five strategic goals. The draft of the strategic plan sets out the following five goals: 1) drive improvement in the quality of audit services through a combination of prevention, detection, deterrence, and remediation; 2) anticipate and respond to the changing environment, including emerging technologies and related risks and opportunities; 3) enhance transparency and accessibility through proactive stakeholder engagement; 4) pursue operational excellence through efficient and effective use of Board resources, information, and technology, and 5) develop, empower, and reward PCAOB staff to achieve the shared goals.

To drive improvement in the quality of audit services, the Board plans to conduct inspection activities to facilitate more timely and relevant feedback to stakeholders. It also will try to better leverage economic and risk analysis to more effectively set standards, rules, and guidance. Other Board objectives to improve quality include enforcing accountability and deterring improper conduct by addressing violations of PCAOB standards and rules, and related federal securities laws, as well as developing and communicating indicators of audit quality.

Changing technology. To accomplish the goal of anticipating and responding to the changing environment, including emerging technologies and related risks and opportunities, the Board proposes to assess and address the impact of emerging technologies on the quality of audit services and to endeavor to understand and consider investors’ audit expectations. It also intends to assess the changing information security environment in order to understand the related risks.

The PCAOB’s effort to enhance transparency and accessibility through proactive stakeholder engagement will involve improving the timeliness, usefulness, and clarity of agency information. The Board also plans to cultivate a dynamic dialogue with stakeholders. According to the strategic plan, the PCAOB will reassess its use of advisory groups to ensure that it is receiving useful advice and expand its engagement with audit regulators around the globe.

Operational excellence. To promote operational excellence, the PCAOB will develop and implement an enterprise risk management program and enhance its budgeting and financial management capabilities while improving its monitoring of internal processes. The Board stated that it will improve its operations and embrace the principles of effective change management. The Board plans to collect, manage, and use data to improve its internal processes and to optimize its IT investments to strengthen its capabilities. Over the next five years, the Board also will strengthen its protection of sensitive and proprietary data.

Finally, the PCAOB expects to develop, empower, and reward its employees by cultivating a high performing workforce through effective recruitment, retention, training, performance management, and leadership development. The Board plans to reward teamwork and eliminate organizational barriers to collaboration and engagement, and to create a culture of inclusion where diversity of experience and perspectives is valued.

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