Earlier today, the PCAOB board voted unanimously to approve its 2009 budget, and directed its staff to submit the budget to the SEC in accordance with Section 109 of the Sarbanes-Oxley Act. The budget of $157.6 million represents an 8.8% increase ($12 million) over last year’s approved budget. See the PCAOB’s press release, which includes links to board members' statements.
Over 70% of the budget is related to personnel, said Budget Director Bill Wiggins during today’s open board meeting, with approximately half the PCAOB’s headcount devoted to Enforcement. The budget includes a net hiring increase of 46 (gross hiring of about 100, given turnover rate of approximately 10% on its current headcount of approximately 500, said Wiggins).
Noting that the preliminary budget was developed in July, PCAOB’s Chief of Staff, Angela Desmond said that external events since that time, most significantly relating to the market downturn, will impact the PCAOB’s activities in 2009. She stated the budget includes money to implement recommendations of the U.S. Treasury Department’s Advisory Committee on the Auditing Profession (ACAP) (described further below), and that there is room for reallocation of funding within the PCAOB budget, within certain limits, (above which SEC approval would be required) to address changing circumstances.
Sixteen of ACAP’s recommendations were directed at the PCAOB, and to address those recommendations as well as those of PCAOB’s Standing Advisory Group, the budget projects an increased headcount in the Office of Chief Auditor (adding 9, currently staffed at 17) and Office of General Counsel (adding 4, currently staffed at 11) to address standard-setting and rule-making related recommendations, including considering potential changes to the form and content of the auditors report, whether to require engagement partner signature on the audit report, potential additional annual reporting requirements for audit firms, and review of the board’s interim standards.
Board member Dan Goelzer commented, “A lot has been said about the ACAP recommendations, let me ask, one recommendation [was to] establish a national fraud center. Of all the recommendations, that strikes me as the one that’s likely to have the biggest resource impact, presumably it means people and maybe facilities as well.” He noted significant resources could potentially be required by the fraud center.
PCAOB’s Deputy Budget Director Yoss Missaghian responded, “There is a provision in the budget to hire one individual mid year to help the board in thinking about scope, reach of the fraud center, [including] conversing with the SEC and other stakeholders.” She said the board expects the person they hire would “help develop a blueprint for the fraud center and lead it, [with] other resources added in 2010.”
Board member Charlie Niemeier voiced concern that , "In one significant area, the budget does not adequately analyze and provide for work that I believe we need to do to protect investors in U.S. securities. Specifically, I continue to have concerns about the scope of our inspections of non-U.S. firms." Goelzer concurred, noting that not only the inspections team will be impacted, but expanded activity in the international arena "puts more pressure on [PCAOB's Office of International Affairs] to deal with, negotiate with" other international regulatory bodies, and "there is a real risk we will not be able to accomplish our inspection goals, not because we don’t have enough inspection people" but because of the need to work out arrangments for cross-border inspection. Part of the expected expansion of international inspection work in 2009 relates to inspecting ‘substantial role firms’ - as described by staff, firms that don’t sign audit reports, but do a substantial amount of audit work (up to a 20% cutoff), which, PCAOB staff said, tend to be foreign firms. PCAOB staff said that among the projected new hires will be 2 more staff for the Office of International Affairs, adding the can get more resources to them if necessary.
Wiggins said the accounting support fee is estimated at $151.8 million, up from $134.5 million last year. He added, "We will have five months of operating resources for 2009 in the working capital reserve fund, to cover our costs until billing [of the support fee] occurs."
PCAOB Chairman Mark Olson said the PCAOB is “highly conscious our mission is supported by public companies... and in turn by their shareholders” [i.e. through the annual support fee], and described the budget as conservative, reflecting the board’s commitment to its mission and stewardship. The budget authorized by the PCAOB board today now goes to the SEC where it undergoes a separate approval process.
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