Speech by SEC Chairman:
Opening Statement on the PCAOB Budget at the Commission Open Meeting
Chairman Christopher Cox
U.S. Securities and Exchange Commission
December 4, 2006
Good morning. This is a meeting of the Securities and Exchange Commission conducted under the Government in the Sunshine Act on December 4, 2006.
The first item on our agenda is a recommendation from the Office of the Chief Accountant and the Office of the Executive Director to approve the 2007 annual budget and accounting support fee of the Public Company Accounting Oversight Board.
I’d like to extend a warm welcome to Chairman Olson of the PCAOB, who has kindly agreed to join us this morning. Since this is the first time we’ve had a PCAOB Chairman participate in a Commission meeting, I’d like to take a moment to acknowledge the outstanding work of the PCAOB in furthering our shared goal of investor protection.
In 2002, at a time when investor confidence in the accounting profession was badly shaken, Congress gave the PCAOB a daunting mandate: to oversee the audit of public companies in order to protect investors and improve the quality and reliability of independent audit reports. In a few short years, the PCAOB has rapidly transformed itself from a seat-of-the-pants, start-up organization to an established, formidable regulator of the auditing profession. The Board has now registered more than 1,600 accounting firms. It is carrying out hundreds of on-site inspections each year, aimed at ensuring high-quality public company audits. As we speak, the PCAOB is working with the SEC to refine the auditing standards for corporate internal controls under Section 404 of the Sarbanes-Oxley Act, in order to focus the internal control audit on those areas creating the greatest risk for investors. I am confident that this effort will not only improve the efficiency of the audit process, but also improve the reliability of public company financial statements and better protect investors.
Since Chairman Olson took the reins at the Board earlier this year, his leadership has been a tremendous asset to the PCAOB and to the public interest. I am particularly grateful, Mr. Chairman, for your leadership in fostering a collaborative working relationship with the SEC. To be effective regulators, we’ve got to work together —especially in areas such as internal controls and auditor independence, which require coordinated rulemaking by both the SEC and the PCAOB. The professional staff of the PCAOB and the SEC are now working together more closely than ever — and that means more efficient, higher quality regulation, which is good for both investors and taxpayers. Mr. Chairman, we look forward to continuing this spirit of mutual cooperation with the PCAOB.
We are here today in fulfillment of the SEC’s statutory responsibilities to oversee the activities of the PCAOB. Among the Commission’s other duties, each year we are required to review and approve the Board’s budget and its accounting support fee. The accounting support fee is an annual fee charged to public companies based on their relative U.S. market capitalization. Those fees, in turn, are used to fund the operations of the PCAOB. Congress established this fee to fund the Board without relying on taxpayer dollars, and without requiring the Board to compromise its independence by accepting money from the accounting industry it regulates.
Last Thursday, the Board approved its final budget request for 2007, and submitted the budget to the Commission for review and approval. The budget proposal before us is the result of many months of hard work by the PCAOB, in close consultation with the SEC staff and with the members of the Commission. These consultations have been going especially smoothly in the current budget cycle, because earlier this year, in close cooperation with the Board, the Commission adopted a new rule governing the annual PCAOB budget process.
The new formal PCAOB budget process provides a specific timetable for the preparation and submission of the PCAOB budget. It sets out a description of the detailed information that is required to be included in each budget submission. And it outlines procedures for the Commission to provide input into the budget, and to promote changes in it where necessary.
Developing this new framework was a groundbreaking effort, and I’d particularly like to acknowledge the outstanding leadership of Acting PCAOB Chairman Gradison, whose long experience and deep knowledge of the federal budget process made this new procedure possible.
Based on this year’s experience, the new framework has been a ringing success. The PCAOB has provided a comprehensive package of information in support of its budget, and they have been fully responsive to the questions and concerns of the Commission and our staff. This is the earliest the SEC has ever considered a budget request from the Board. And it is 19 days earlier than the deadline provided in our new rule.
The proposed PCAOB budget calls for total outlays of $136.4 million — about four percent greater than last year’s budget. The total accounting support fee is $122.4 million. That is slightly lower than the budget amount due to a carry-over of excess funds from last year.
The 2007 budget is intended to allow the PCAOB to consolidate and strengthen its core programs, particularly in the areas of registration and inspections. It will provide for building out the PCAOB’s Enforcement Division, and its IT infrastructure. And it will ensure that the PCAOB is able to continue to attract and retain highly qualified professionals from the accounting industry.
In the future, I know that you, Chairman Olson, and the other members of the Board anticipate that the PCAOB budget will be informed by a multi-year strategic plan. We look forward to working with you on that strategic plan, because it will help provide the Board and the Commission with a common vision of the medium- and long-term goals of the PCAOB. And it will give us a roadmap for evaluating the budgets that will be necessary to achieve those goals. And so we look forward to discussing the strategic plan with you and with the other members of the Board in the coming weeks.
So in summary, Mr. Chairman, I would like to thank you, the other members of the Board, and the PCAOB staff for your excellent work on this 2007 budget request. The budget submission is both thorough and sound, and I am pleased to support it. I would also like to thank the SEC staff in the Office of the Chief Accountant, particularly Conrad Hewitt, Bob Burns, Melanie Jacobsen, and Amy Hargrett, and in the Office of the Executive Director, Diego Ruiz, Ken Johnson, and Yoss Missaghian, for your valuable assistance in developing on this budget.
So now, Chairman Olson, we will recognize you to provide us with a more detailed description of this year’s budget request. And again, welcome, and thank you for being with us this morning.