The five commissioners of the US Securities and Exchange Commission recently voted on the Public Company Accounting Oversight Board’s proposed budget for 2025.

The proposed budget was around $400 million, a 4% increase from 2024, with no increase in headcount, and was approved by a 3 to 2 vote. As is their way, each of the commissioners released a statement in support of their vote – this is from outgoing Chair Gary Gensler:

• I support (the proposal) because of the important role the PCAOB plays in protecting investors and facilitating capital formation.
• Well-functioning financial markets are built on trust. Critical to such trust are disclosures—including financial statement disclosures made by issuers and broker-dealers to the investing public.
• Nearly 25 years ago, though, that system of disclosure and trust broke down. Fraud in financial reporting and accounting eventually led to historic bankruptcies, such as Enron and WorldCom.
• My Grandpa Ellis Tillis often repeated the old line: “Figures don’t lie, but liars sure can figure.” Investors needed facts and figures they could trust — figures without the liars.
• Congress responded by passing the Sarbanes-Oxley Act of 2002. Having had a ringside seat advising my home state senator, Paul Sarbanes, on this historic legislation, I saw how both Congressman Mike Oxley and he understood all too well the importance of figures.
• Their vision led to reforms establishing the PCAOB as an independent watchdog over the audits of public companies and their auditors. It’s an independently funded board under the regulatory oversight of the Securities and Exchange Commission.
• Auditing firms must register with the PCAOB if they audit one of the approximately 7,000 actively reporting public companies or one of the about 3,300 SEC-registered broker-dealers. Under the Sarbanes-Oxley Act, the PCAOB must conduct inspections of such audit firms at least once every three years. Last year, Board staff conducted more than 232 audit firm inspections of more than 930 firm engagements in 37 jurisdictions all around the world.
• Of the PCAOB’s 945 staff, its 520-person inspections division, the largest group, makes up more than half of the board’s staff…
• The PCAOB…writes the standards for auditors and audits the auditors. That’s the core of what it does, and it’s every bit as important now and into the future.

But Gensler’s comments, being little more than a string of platitudes (my Grandpa Ellis indeed…), don’t speak at all to the specific appropriateness or likely effectiveness of the $400 million budget (no doubt Gensler probed deeply into that behind the scenes, but my focus here is on the ultimate choice of positioning, or of branding if you will). Bringing to mind the adage about the devil having the best tunes, the fearsomely articulate Republican appointee Hester Peirce, in voting against the proposal, delivered much more incisive and relevant food for thought:

• Are the dollars the PCAOB is spending working? The PCAOB paints a picture that does not look a lot better than pre-PCAOB days. PCAOB staff reports that “aggregate deficiency rates have continued to increase across all inspection programs, and 46% of the engagements reviewed in 2023 had at least one Part I.A deficiency, excluding broker-dealer audit inspections.”… Chair Williams noted recently that restatements by public companies are at a nine-year high: 140 public companies issued restatements for the first ten months of 2024, “up from 122 in the same period last year and more than double the figure four years ago.” The PCAOB’s $35 million in fines this year reflect a 75% increase from last year, which was itself 80% higher than 2022’s levels…. It is hard to know what to make of these numbers. Are the audit deficiencies uniformly serious, or is the PCAOB fixating on foot-faults? Do they really compromise audit integrity? Is the increase in fines attributable entirely to real problems, or are some cases punishing imperfect form filing? …The PCAOB’s heavy-handed approach might look good at first glance, but a more nuanced approach is needed.
• Whatever one makes of those numbers, the PCAOB’s trumpeting of them as evidence of the importance of its work is misguided and its approach to audit oversight is destined to drive inspection deficiencies and enforcement fines even higher. A preferable approach relies on carefully implemented principles-based standards designed to afford room for auditors’ professional judgment, the deployment of inspection staff to assist firms proactively in improving audit quality, and the use of enforcement only when serious violations have occurred. Audit oversight is difficult work. Getting it wrong risks transforming the audit profession from one where accounting professionals exercise informed, independent judgment to interpret and apply principles-based standards into a mechanical exercise where risk-averse, robotic auditors engage in a box-checking exercise focused on insulating themselves and their clients from liability based on the hindsight of regulators…

I’m well aware that I’m grossly simplifying here, but the contrast between the two statements somewhat reverses the normal opposition between the right and its sloganeering simplifications (make America great again; axe the tax…) and the left, which in its relatively greater respect for rationality can get itself tangled up in detail. Whatever one may think of Peirce’s ideological motivations, her points and concerns are probably more relevant to the audit profession’s current challenges than a blandly boosterish encouragement to keep on going. Go figure…

The opinions expressed are solely those of the author.