PCAOB Approves Five-Year Strategic Plan (2018-2022)
PCAOB Approves Five-Year Strategic Plan (2018-2022)
PCAOB’s five-year strategic plan provides a blue print for how the new leadership at the PCAOB is increasing the organization’s focus on understanding and designing activities and standard-setting that take into account the interplay of audit quality, stakeholder perspectives, embracing emerging technology impacts on financial reporting and inspections, and a shift toward deficiency prevention by putting emphasis on audit firms’ quality control processes and considering changes to how deficiencies are communicated to the market. We encourage you to read the plan and consider BDO’s insights shared below.
PCAOB Transformation and Strategic Plan
The Public Company Accounting Oversight Board (PCAOB) is in a period of transformation, making changes to how it inspects accounting firms and interacts with stakeholders. These changes are detailed in the PCAOB’s strategic plan for 2018-2022, approved on November 15, 2018 in an open meeting.
For the first time in 15 years, the PCAOB has an entirely new slate of board members. According to board member Kathleen Hamm, the SEC has tasked the new board with assessing the PCAOB’s activities and operations and determine a new strategic direction. The overall goal of the strategic plan is to drive continuous improvement in audit quality and improve communication with investors, audit committees, preparers, and other stakeholders, while transforming into a more “agile, innovative, regulator.”
The five areas of focus in the strategic plan include:
Drive improvement in the quality of audit services through a combination of prevention, detection, deterrence, and remediation.
Anticipate and respond to the changing environment, including emerging technologies and related risks and opportunities.
Enhance transparency and accessibility through proactive stakeholder engagement.
Pursue operational excellence through efficient and effective use of our resources, information, and technology.
Develop, empower, and reward our people to achieve our shared goals.
To start with adherence to the goal of collaboration and transparency, the PCAOB was assisted by a consultant in developing their strategic plan and utilized outreach and surveys to develop the plan. The draft was open for public comment prior to being finalized. The PCAOB also plans to conduct more outreach to financial statement preparers and other stakeholders and to be “more open with respect to our operations and with respect to the information that we collect and produce.” The focus on communication with financial statement preparers is a key change meant to break down the former “walls” that the PCAOB is only of concern to auditors. There also seems to be a shift by the PCAOB to focus on best practices of audit firms. As an audit firm, we have noticed a significant shift toward a more “open door” policy with respect to the frequency and quality of conversations with the PCAOB occurring throughout the year about audit quality drivers and indicators which has increased the communications and enforced a feedback loop with the audit profession.
Another significant emphasis noted in the PCAOB strategic plan includes a shift from focus only on audit deficiencies observed to a more “forward-looking and balanced” approach that looks at prevention. What this likely means for audit firms is more focus during PCAOB inspections on firm quality control processes and monitoring procedures from a top-down approach, which includes the use of and supervision of other audit firms within the scope of an audit.
The strategic plan also addresses a change in inspection reports, including improved clarity, timeliness and relevance. As a firm, BDO notes acceleration of inspections timing and improved timing of PCAOB’s findings reporting at a firm level. We anticipate this expedited timing to continue.
Some other changes we expect to see as a result of the new plan is more focus by the PCAOB on firms’ use of technology, such as data analytics and artificial intelligence, not only in their inspections but also in use by the PCAOB as they advance technology usage in their own inspections. We further expect increased interest from the PCAOB in our expanding use of data analytics as audit tools and as used in our own assessment of firm-level audit quality.
Finally, the strategic plan indicates that the PCAOB intends to better leverage economic and risk analysis of standards by incorporating data from their oversight activities and performing post-implementation reviews of new or amended auditing standards. Auditors, management and audit committees should be further contemplating the increased pace of significant standard-setting and the strategic and operational impacts that these will have on the financial reporting process and be involved in both dry run and post-implementation sharing of knowledge to better inform the PCAOB on additional needed guidance in implementation or on unintended consequences of stand-setting.
You can view a copy of the strategic plan and recording of the open meeting here.