Providing Needed Resources to the PCAOB
Commissioner Luis A. Aguilar
U.S. Securities and Exchange Commission
February 13, 2013
Today we consider the resources the Public Company Accounting Oversight Board (“PCAOB” or “Board”) needs in order to oversee audits of public companies and broker-dealers and fulfill its mission to protect the interests of investors and to further the public interest in the preparation of informative, accurate, and independent audit reports.1
The operations of the PCAOB are funded primarily by an accounting support fee paid by public companies and broker-dealers whose financial statements are audited by Board-registered accounting firms. Although the PCAOB is responsible for its budget, both the budget and the support fee are subject to Commission approval.2 I am sensitive to our responsibility to exercise prudent and effective oversight over the PCAOB’s budget.
The Commission’s rules require the PCAOB to align its budget request and justification to the Board’s long-term strategic goals, duties, and responsibilities.3 To that end, the Board has adopted a detailed, five-year strategic plan, which is available to the public on the PCAOB’s website.4 I am pleased to see that this strategic plan continues to focus on the interests of investors.
The Board’s near-term priorities include important projects to identify audit quality measures, deepen its inspection analysis, and improve reporting with respect to both inspections and remediation – all while expanding the global inspection program to jurisdictions that have recently opened their doors to the PCAOB and rolling out the inspection of broker-dealer audits as mandated by the Dodd-Frank Act.
On the international front – although the Board has made progress over the last 12 months, including bilateral cooperative agreements with regulators in Germany, Spain, Finland, and France – the PCAOB continues to face resistance in China (and, to the extent audit clients have operations in China, Hong Kong). The PCAOB's inability to inspect the Chinese operations of registered accounting firms continues to be a serious problem, given the number of claims in recent years regarding potential fraud or other irregularities at China-based companies traded on U.S. markets. As I’ve said previously,5 this is a matter that needs resolution. The inspections program is the heart of the PCAOB’s mission. It is critical to both investor protection and investor confidence, and I appreciate the Board’s recognition of that urgency.6
In addition, I am particularly pleased that the new budget supports resources dedicated to evaluating the remediation efforts of firms with identified quality control weaknesses. As I and others have noted, the level of audit deficiencies uncovered by the inspection process is simply unacceptable; and many of the same areas of concern have been identified repeatedly by the PCAOB, year after year.7 It is high time to break that cycle. I sincerely hope that PCAOB-review of remediation efforts can help accounting firms put process improvements, incentives, and effective controls into place to improve audit quality. Our capital markets cannot work unless investors can trust the numbers in audited financial statements.
I also recognize that the PCAOB is working to improve its standard-setting process. The Board’s recent agenda prioritizes improvements in the interim auditing standards, which are now nearly ten years old, and highlights the need to address standards such as the auditor’s reporting model, quality control, fair value measurements, and auditor responsibilities with respect to other audit participants. I look forward to the improvements.
I am pleased to support the Board’s 2013 budget and accounting support fee. In my view, the budget provides the PCAOB with an appropriate level of resources to fulfill its mission.
I would like to thank Chairman Doty, and the members and staff of the PCAOB, as well as SEC staff from the Office of the Chief Accountant and the Office of Financial Management, for their care and diligence throughout the budget process, as well as the time spent with myself and my staff to respond to my questions and concerns. I appreciate your dedication, and the important work you do to protect investors.
1 See, Section 101(a), Sarbanes-Oxley Act of 2002, as amended, 15 U.S.C.A. §§ 7201-7266 (the “Sarbanes-Oxley Act”).
2 Sections 109(b) and 109(d)(1) of the Sarbanes-Oxley Act.
3 Securities and Exchange Commission Regulation P, 17 C.F.R. §202.190 (2011).
4 Public Company Accounting Oversight Board Strategic Plan: Improving the Relevance and Quality of the Audit for the Protection and Benefit of Investors 2012 – 2016 (Nov. 30, 2012), available at http://pcaobus.org/About/Ops/Documents/Strategic%20Plans/2012-2016.pdf.
5 Luis A. Aguilar, Commissioner, U.S. Securities and Exchange Commission, Capital Formation from the Investor’s Perspective, Remarks at the AICPA Conference on Current SEC and PCAOB Developments (Dec. 3, 2012), available at http://www.sec.gov/news/speech/2012/spch120312laa.htm.
6 Michael Cohn, “PCAOB Chair Doty Warns Against Auditing Shortcuts,” AccountingToday (Nov. 30, 2012), http://www.accountingtoday.com/news/PCAOB-Chair-James-Doty-Warns-Auditing-Shortcuts-64833-1.html.
7 Aguilar, op cit.