ThinkTWENTY20

Statement to U.S. Securities and Exchange Commission Regarding the PCAOB’s 2019-2023 Strategic Plan and 2020 Budget

Washington, DC: December 18, 2019 – Statement by SEC chair William D. Duhnke at the SEC Open Meeting on the PCAOB Budget

Chairman Clayton, and Commissioners Jackson, Pierce, and Roisman, thank you for the opportunity to present the PCAOB's 2019-2023 Strategic Plan and 2020 Budget. We greatly value the chance to work side-by-side with you and your talented staff as we seek to protect the interests of investors and further the public interest in the preparation of informative, accurate, and independent audit reports.

I will keep my remarks brief this morning. First, I will review the progress we have made in 2019 in executing our strategic priorities. Second, I will provide an overview of our strategic priorities for 2020. Finally, I will conclude with an overview of the proposed 2020 Budget, which outlines the resources we need to support our 2020 priorities. I'll then be pleased to address any questions you may have.

I. Progress on Strategic Priorities in 2019

In 2018, the Board worked collectively to assess where we were as an organization and to determine where we wanted to take the PCAOB over the next several years. Following significant outreach, in November 2018, we laid out a new strategic plan. That plan emphasized the need for us to transform the PCAOB into a trusted leader that promotes high quality auditing through forward-looking, responsive, and innovative oversight. It set out five goals for achieving that vision and articulated the core values we expect our people to demonstrate.

In 2019, we began the work necessary to implement our new vision and execute on our goals and objectives. Doing so has required substantial change. That change has permeated the entire organization, from top to bottom. It has touched nearly every aspect of our work. Change is never easy. We have asked a lot of our people. And we will continue to do so. As a Board, we are highly committed to our mission. That commitment translates into high expectations for our people, who we rely on to accomplish our work. Fulfilling those expectations requires diligence, commitment, and, most of all, an openness to new ideas—ideas that allow us to identify and implement effective and efficient means of promoting audit quality. It also requires looking past the fears that change instills to the opportunities that change presents.

For some, the changes have been quite difficult. For many, the changes have been welcome and long overdue. Regardless, the Board has decided unanimously to pursue our current course, as evidenced by our re-affirmation of our existing strategic plan. We believe the changes are necessary to fulfill our mandate. We also believe they are critically important to move the PCAOB along the organizational maturity curve.

We have a number of strategic initiatives underway. I'd like to highlight briefly a few areas in particular where we have focused our efforts this past year.

• First, we have made important changes to how we conduct inspections—the first step in a multi-year journey to transform our inspections program.

§  We devoted substantial resources to understanding how the largest audit firms define their quality control objectives and manage the risks associated with achieving those objectives.

§  We significantly increased our interaction with audit committees during the inspection process. This year our goal was to speak to the audit committee chair on every inspection we conducted, or nearly 400.

§  We deployed our first ever "target team" of inspectors to perform a cross-firm review of an area of increasing risk and focus: the conduct and supervision of multi-location audits.

§  We devoted significant resources to refining our inspections report format to better meet the needs of investors and audit committee members, as well as the broader public. In the first quarter of 2020, we plan to release the new inspection report format, beginning with the 2018 reports for the largest U.S. firms.

§  We formed a new team, known as the "Inspections Quality Group." This group, staffed by experienced inspectors, has been tasked with ensuring the consistency, quality, and effectiveness of our own inspections activities.

Second, we have made impactful changes to our stakeholder outreach and communications:

§  We recently hired our first-ever stakeholder liaison. She serves as a direct point of contact and resource for investors, audit committee members, and financial statement preparers. She is actively pursuing a new external engagement strategy for us.

§  We increased our visibility and transparency for our core stakeholders. Over the last several months, over 800 investors and 600 audit committee members attended events where the PCAOB had a presence. This includes attendance at our first-ever series of investor roundtables and audit committee roundtables.

§  We dedicated significant resources towards improving the timeliness and usefulness of our external documents, such as staff guidance. We issued targeted resources for investors, audit committees, and auditors, including related to the implementation of critical audit matters, as well as the new requirements for auditing estimates and the use of specialists.

Third, we have made a number of additions and enhancements to our operations.

§  We on-boarded employees into newly-created, significant positions—including a Chief Data Officer, Chief Risk Officer, Chief Compliance Officer, and Chief Information Security Officer, as well as staff to support them.

§  We launched the PCAOB's first-ever enterprise risk management program and developed formal plans and systems to identify and respond to business continuity concerns as well as other security threats and incidents.

§  We developed a new suite of performance metrics to measure our progress towards completing our strategic goals, and re-organized and streamlined our budget to focus more on performance.

§  We enhanced our governance by implementing a number of automated collaboration and communications tools for the Board and by providing new performance and financial reports to the Board.

Finally, we have taken significant steps towards optimizing our culture.

§  We drafted our first-ever human capital strategic plan.

§  We launched a culture survey. Through it, we set a baseline for where our culture is today and identified the specific challenges we face. We have also developed targeted actions to respond to the themes we hear from our employees.

§  We launched a new learning management system to assist our staff in their professional growth and development.

§  We expect to issue soon a new compensation philosophy and a career progression philosophy, with an increased emphasis on transparency for our employees.

§  We recently developed and launched a comprehensive internal communications plan, with an aim of communicating more often and more effectively with all PCAOB staff.

These are just a few of the changes we have pursued during 2019. We have spent substantial time and resources filling gaps we identified on our arrival and addressing the numerous deficiencies we saw. 

II. Strategic Priorities for 2020

While we are proud of what we have accomplished so far, much more remains to be done to fulfill our strategic vision. That is why the Board voted unanimously last month to reaffirm our current strategic direction in the 2019-2023 Strategic Plan. As you will note, we have made no substantive changes to our existing strategic plan. When we adopted our plan last year, we understood it would take several years of consistent, dedicated effort to accomplish our goals and objectives. That remains true today.

Continuing on our current course, we plan to focus our attention in 2020 on changes that will allow us to best fulfill our vision in the long run. For example, we intend to prioritize the following actions:

§  Further transformation of our inspections program, including by addressing how we select audits for inspection, how we perform inspections of quality control systems and individual audits, and how we report our findings;

§  Publication of a proposed rule governing audit firms' quality control systems;

§  Publication—and potentially adoption—of a proposed rule addressing a permanent program for broker-dealer inspections;

§  Re-alignment of our standard-setting agenda with current strategic priorities;

§  Implementation of our human capital strategic plan and related initiatives to align incentives and personnel with our strategic goals and core values; and

§  Execution of our new risk management, technology, data, information security, and business continuity strategies.

One additional note for 2020. We have now filled all of our vacant leadership roles, including the Director of DEI and General Counsel. We recently announced those appointments and we will on-board those new employees during the first two months of 2020.

III. Overview of 2020 Budget

I will turn now to the specifics of our proposed 2020 Budget. We have proposed a budget of $284.7 million. That represents a 4% increase over our 2019 Budget. Consistent with prior years, the largest component of our budget is personnel costs, which include salaries, benefits, taxes, training, and recruitment. Those costs account for $211.5 million of the total, or nearly 75%. The proposed 2020 Budget would fund 850 positions, or 12 more positions than our 2019 Budget.

If approved, the proposed 2020 Budget will result in a projected accounting support fee of $270.2 million, which is $7.3 million (or 2.8%) higher than in 2019. For issuers, the accounting support fee is $240 million. For broker-dealers, it is $30 million.

In presenting the proposed 2020 Budget, we have mapped the resource needs of each of our divisions and offices to the specific goals and objectives laid out in our 2019-2023 Strategic Plan. We believe the amounts outlined accurately reflect the resources we need to continue to execute our statutory mission along with our related strategic priorities. Many of our strategic priorities require short-term investments to fulfill the Board's vision of being a trusted leader that promotes high-quality auditing through forward-looking, responsive, and innovative oversight. In the longer term, we fully expect that many of these priorities will result in more efficient and effective operations.

Let me conclude by thanking the many members of the Commission's staff who contributed during our budget process, including Sagar Teotia, Chief Accountant, and Marc Panucci, Deputy Chief Accountant. We appreciate the close working relationship we have with them and the valuable input they provided to us.