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From Securities Regulation Daily, December 14, 2016

SEC approves PCAOB’s 2017 budget in a split vote

By Jacquelyn Lumb

The SEC, in a two-to-one vote, approved the PCAOB’s 2017 budget of $268.5 million, which includes an accounting support fee of $232.6 million to be assessed on issuers and $35.4 million to be assessed on registered broker-dealers. Commissioner Michael Piwowar voted against the budget given what he sees as the board’s inability to restrain spending. Compensation has driven the budget and support fees to higher and higher levels, he said. PCAOB Chair James Doty said the budget was not a growth budget and that it reflects cost-effective strategies to automate, streamline, and improve the board’s processes; maximize staff productivity; and promote the careful stewardship of its resources.

Budget increase. In opening remarks at the SEC’s open meeting, Chair Mary Jo White noted that the budget represents a 4.2 percent increase over the 2016 budget and a 6.2 percent increase over the amount the PCAOB expects to spend in 2016. She referred to some of the board members’ view that the PCAOB is nearing a steady state with respect to the scope of its core programs of inspections, standard setting, and enforcement. She called on the board to conduct a thorough study of its operational efficiency and budgetary needs and to submit a report by March 15, 2017, which is when the 2018 budget outlook is due to the Commission.

SEC Chief Accountant Wesley Bricker agreed that the board’s core programs have reached a steady state. The head count in the budget is flat, he advised, but the increase reflects unfilled positions that the board intends to fill. He also included among his recommendations to the Commission that the board study its infrastructure and operational efficiency and provide updates to the SEC, beginning with the next budget cycle.

Areas of focus. Other areas that warrant an ongoing focus, according to Bricker, are the new research agenda and standard setting process; economic research and analysis activities; the inspection program; and the information technology program. With respect to the board’s personnel costs, the SEC’s chief financial officer noted that the Sarbanes-Oxley Act allows the board to set salaries that are competitive with the private sector, and advised that the board has conducted compensation comparison studies.

White asked Doty to comment on some of the board members’ concerns with the budget that were raised at the PCAOB meeting at which the budget was approved prior to forwarding it to the Commission. Doty said that disagreements arise during the budget approval process, but the members came together on the key areas, as evidenced by the budget submitted to the SEC for approval.

Biggest accomplishments. Commissioner Kara Stein asked Doty to name what he sees as the board’s biggest accomplishment in 2016, to which he replied its standard-setting activities. If he could accomplish only one priority for 2017, Stein asked what it would be, and he responded the adoption of a revised auditor’s reporting model, which he believes would provide an important contribution to the capital markets.

Stein asked if the rate of deficiencies the board identifies during inspections is also at a steady state. Doty said the continuing rate of deficiencies preoccupies the staff and the board. He anticipates that improved supervision of affiliated firm audits and better risk analysis, including randomization of inspections, may bring improvements.

Economic analysis. Although he voted against the PCAOB’s budget, Piwowar applauded the activities of the board’s Center for Economic Analysis. Doty credited the Center for the board’s post-implementation review of Auditing Standard No. 7 and for its randomization studies to make board inspections less predictable, among other things. He said the board sees a high yield from the Center in forwarding its mission.

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