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From Securities Regulation Daily, February 4, 2015

SEC approves PCAOB’s 2015 budget and accounting support fees

By Jacquelyn Lumb

The SEC today unanimously approved the PCAOB’s 2015 budget of $250.9 million and its accounting support fee, which contributes $226.6 million to the budget. The budget reflects an approximate 3 percent decrease from the 2014 budget. In opening remarks, SEC Chair Mary Jo White said she was pleased that the board has expanded the scope of its interim inspection program for the audits of broker-dealer financial statements, especially given the inspection findings that reflect a need for substantial improvements. White also encouraged the board to enhance the urgency and prioritization of its standard setting. Many projects have been on the board’s agenda for a number of years, she said, and they address important areas where clear and robust auditing and quality control standards are needed.

PCAOB chair.  PCAOB Chair James Doty acknowledged that the board’s inspections continue to reveal an unacceptably high rate of failure to comply with the existing standards. The budget will allow the board to conduct inspections of 300 registered accounting firms and 75 auditors of broker-dealers in 2015. Doty reported that in 2014, the board had a record-setting 24 settled disciplinary proceedings. He expects the board to step up its international enforcement efforts in 2015.

Doty agreed with White that the board’s standard setting process can be improved and said he is working closely with SEC Chief Accountant James Schnurr in that effort. Doty sees the effort as a real opportunity to improve the process and said the board will include outside experts so that a fresh set of eyes can contribute to the review.

Foreign inspections. Commissioner Luis Aguilar focused on two particular challenges the board faces — the inspection of registered auditing firms in foreign countries and oversight of firms that audit broker-dealers. Aguilar said the board’s inability to conduct inspection in certain countries raises unnecessary risks for investors. He believes the absence of cooperative agreements for cross-border inspections in certain countries in the EU and in China is long overdue.

Broker-dealer audits. Aguilar said the board’s inspection findings in the audits of broker-dealers demonstrate the importance of its role in their oversight. He commended the board for expanding its interim inspection program while developing a permanent program for auditors of broker-dealers. Aguilar said the success of the board’s budget will be measured by the progress the board makes on the near-term priorities outlined in its strategic plan.

Agenda priorities. Commissioner Daniel Gallagher questioned whether the board is focused too heavily on disclosure projects at the expense of progress on core auditing standards and asked Doty whether the board should reexamine its priorities. Doty agreed that it is a matter of balance but highlighted the importance of informative audit reports to investors, the subject of one of the board’s disclosure initiatives.

Consultation papers. Gallagher also questioned whether the use of consultation papers in advance of publishing a proposal merely adds another layer to the process. Doty said the use of consultation papers was suggested by the board’s economists as a means of gaining immediate responses that help inform the proposal.

Audit firm rotation. Gallagher asked about the board’s intentions with respect to its monitoring of mandatory audit firm rotation in other jurisdictions. Doty said there is a new regime in Europe on which the board is receiving a great deal of anecdotal information. It is important to know the impact of that regime and whether its effect on audit quality is positive or negative, he explained.

Going concern. Gallagher asked about the board’s goal with respect to its going concern project and questioned what is left to resolve. Doty said it is important to take the right approach, but the guiding principle may be “do no harm.” He said the staff will use the consultation process to move forward in an appropriate way. Gallagher urged the board to proceed carefully with a view to consistency with FASB’s standard.

In response to a series of questions posed by Commissioner Kara Stein, Doty reviewed the board’s initiatives that are of greatest importance to investors and what can be done to address the unacceptably high percentage of audit deficiencies. For firms that haven’t gotten the message, Doty said the board needs to make compliance obligations clear and back them up with enforcement.

With respect to the foreign jurisdictions where the board is not currently allowed to conduct inspections, Doty said that only a clutch of nations remain and they are close to an agreement. He said the board is as close as it has ever been to reaching an agreement with China, but if an agreement is not reached soon, it may be time to reconsider its options in consultation with the SEC.

Commissioner Michael Piwowar noted that the PCAOB’s budget contains the first reduction in accounting support fees in a decade. He asked Doty about the accomplishments he would like to see in 2015. One goal is to see measurable efficiency in the Board’s standard setting, Doty advised.

MainStory: TopStory PCAOBNews AccountingAuditing BrokerDealers

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