The PCAOB Proposes a New Five-Year Plan – Excitement Levels are Muted

"Mann Tracht, und Gott Lacht”

            --Yiddish adage

 “Man plans -- and God laughs.” Heavenly company for bemused reactions to the draft five-year Strategic Plan exposed for public comment by the Public Company Accounting Oversight Board on August 10.

The audit regulator in the US is starting afresh. An entire slate of five new Board members was installed in December, ending the two-year extension of chairman Jim Doty’s sell-by date. A sweep of senior staff departures has included the heads of enforcement, registrations and inspection, audit and professional standards, and information technology.

Little wonder the new chairman’s Message touted the engagement of a “strategic planning consultant.” Who else was to help all the new arrivals find their desks?

The results are risibly obvious: page upon page of language so blandly generic as to be taken from available templates or cribbed from those gathering dust in corporate file bins. Mind-deadening language is strewn across an amplitude of numbers:

• Four “areas of strategic focus” in the Message itself
• Four “primary duties” in the description of the agency (p.3)
• Five “values” (p. 4)
• Three “key factors” affecting the strategic outlook (p.5)
• And five “strategic goals,” each bearing between two and four “objectives” (pp. 7-13)

All displayed under cover of five bullets in a press release, to set forth what the Board “intends” – unfortunately omitting any specifics of inter-play amongst them.

It’s a matter of perspective whether issuance of a “plan” that could have come from a desk drawer justifies such a doubtless high-priced exercise. The Board does buy itself the political benefit of a placeholder, as the absence of detail under this top-heavy verbosity will give cover for the time to provide annotations – sure to extend past this fall’s mid-term elections and well toward November 2020. And an approach of “do-nothing, and very slowly” accords with the PCAOB’s long-established tradition of releasing its modest accomplishments only after excruciating periods of contemplation: six years to consider the naming of audit partners, three years before concluding that mandatory auditor rotation was a non-starter, six years to fall in behind the IAASB in requiring extended auditors’ reports, and sixteen years and counting without resolution of its impasse with Chinese authorities over information gathering and audit firm inspections there.

(For entry to a fuller discussion of the PCAOB’s languid history, see my posts of December 21, 2015, February 11, 2014, August 29, 2017, and January 5, 2018, and Chapter Three of my book, “Count Down: The Past, Present and Uncertain Future of the Big Four Accounting Firms” (2d ed. 2017) – here.)

As for the invitation to comment on the Plan and its five Goals, some specific steps might reasonably be slotted into the Board’s aspiration to be “a trusted leader that promotes high quality auditing”:

• At the heart of the PCAOB’s public credibility issues, its objective (1:1) to provide “more timely and relevant feedback” has been frustrated from inception by the lid of confidentiality clamped on the nature and scope of information that is publicly disclosable, under the Sarbanes/Oxley law itself (see Release No. 104-2004-001, August 26, 2004). Unlikely as it would be in the current environment, a legislative initiative to permit real transparency, taken jointly with the leaders of the no-less-reluctant accounting profession itself, would be to the benefit of both. Trust and credibility require no less -- but don’t hold your breath.

• The stated objective (2:1) to “ensure that oversight activities do not impede innovations…” is not met by a plan merely to “monitor the development and implementation of emerging technologies.” Evolution to an assurance function fit for purpose, to supplant the currently low-value “true and fair view” opinion, requires the fundamental elimination of the archaic and detrimental constraints on the scope of ancillary services permissible to auditors. Again – critically necessary, although unlikely.

• To “expand engagement with other audit regulators around the globe” in a meaningful way (3:2) would involve actual advocacy of specific areas of desirable change. By rights this should start by the PCAOB re-visiting with its counter-parts the failure of mandatory re-tender in the UK to avoid the unintended consequence of reduced competition, and the prospect of similarly malign results under the mandatory rotation rules of the EU.

• And, on the other hand, where progress has proved futile and success elusive, namely in China, a strategic retreat is indicated, ahead of the blow-up that is otherwise a present hostage to the antagonisms between the oversight regimes of the two countries.

To close on a non-trivial quibble with the lack of a roadmap to the Plan from the Board’s press release and its five “intents,” no substance is offered on how to “reinforce the PCAOB’s culture of integrity, excellence, effectiveness, collaboration and accountability.”

On that topic, silence from this Board is no surprise, about the long-running criminal proceedings in New York, where ex-agency employees are charged with purloining and transmittal of confidential inspection information. With leadership’s heads firmly down, more impactful than lofty language and process tweaking by the agency is the prospect that the ex-employees are facing potential prison sentences of up to 65 years.

Putting that notion into a “strategic plan” would have suited Voltaire’s 18^th century comment on the state of discipline in the French navy, that hanging the occasional admiral should “encourage the others.”

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