Statement at Open Meeting: PCAOB Proposed Budget and Accounting Support Fee for 2017
Chair Mary Jo White
Dec. 14, 2016
Good morning. This is an open meeting of the U.S. Securities and Exchange Commission on December 14, 2016 under the Government in the Sunshine Act. Today, the Commission will consider the staff’s recommendation to approve the proposed 2017 budget and accounting support fee for the Public Company Accounting Oversight Board (“PCAOB”). Under the Sarbanes-Oxley Act, the Commission has the authority and responsibility for overseeing the PCAOB and approving the PCAOB’s annual budget and support fee. Chairman Jim Doty, other Board members and staff of the PCAOB are here today as we consider these matters. Thank you all for joining us and for the work that you do.
An effective and efficient PCAOB is critical to the interests of investors. As the independent overseer of the audits and auditors of the financial statements of U.S. public companies, as well as SEC-registered broker-dealers, the PCAOB is charged with protecting investors and furthering the public interest in the preparation of informative, accurate, and independent audit reports. High quality independent audits are a critical element of the SEC’s investor protection regime and are essential to the integrity of the U.S. capital markets where millions of Americans invest their savings and retirement assets. The Commission is charged with exercising appropriate oversight responsibility over the PCAOB and its work in order to be satisfied that funding for the PCAOB is set at an appropriate level to enable it to fulfill its vital mission.
As established under the Sarbanes-Oxley Act, the PCAOB is to perform its oversight through four primary responsibilities: 1) registration; 2) inspections; 3) standard-setting; and 4) enforcement. Focusing on the core program of inspections, the PCAOB has made impressive achievements on this front. First, the PCAOB has continuously enhanced its risk-based approach to inspections, and these efforts over time have had a positive impact on audit quality. Second, the PCAOB has worked hard to reach new cooperative inspection agreements and renew existing agreements with its international counterparts. With its most recent agreement with Italy completed last month, the PCAOB now has inspection agreements in most European countries that are home to registered firms the PCAOB is required to inspect. The Board should continue its efforts to expand its inspections access in all foreign jurisdictions where inspections are required.
Inspections of audits of broker-dealers continue to operate under the temporary program the PCAOB created in 2011. The Dodd-Frank Act provides the Board with the flexibility to design a permanent inspection program for audits of broker-dealers commensurate with the risks. Given the deficiencies observed in the audits done under the PCAOB’s interim program over the last five years, I again encourage the Board to continue to evaluate what it has learned from this program and its other activities about the risks in audits of all types of broker-dealers to design an appropriately informed proposal for a permanent program.
Through its inspections and work that supports the inspections program, the PCAOB must continue to focus on identifying and addressing new and emerging risks to audit quality. It is equally important that the auditing standards applicable to audits of public companies and broker-dealers are rigorous, high-quality, and keep pace with changes to financial reporting and the needs of investors. That is why it is imperative for the PCAOB to have and maintain an active standard-setting agenda and for timely progress to be made on its standard-setting projects. The PCAOB’s self-assessment of its standard-setting process over the past two years and the efforts it has undertaken in the last year to move projects forward have been constructive, but the efforts need to continue. The standard-setting projects that have been completed include the adoption of a rule for the disclosure of the engagement partner and certain participants in the audit and a separate proposal relating to the supervision of audits involving other auditors.
Looking ahead on the standard-setting front, the Board and staff of the PCAOB continue work on many important and challenging projects, including the auditor’s use of the work of specialists, and auditing accounting estimates – including fair value measurements. In addition, we understand that the PCAOB has made significant progress on its project to consider updating the standard auditor’s report, which is a critical project that has been of great interest to many investors and others.
While pressing forward with its important work in these areas, the PCAOB is also in the process of implementing its new standard-setting process. As the Board continues with this implementation, I encourage continued thought on how best to ensure that the organization has a standard-setting process that provides for appropriate research before embarking on new projects and enhanced outreach at all stages.
The Board regularly informs the Commission and our staff of developments in a variety of areas, including its standard-setting, inspections, information technology program, and its incorporation of economic research and data analysis into its programs. We value this information and the collaborative and productive work that occurs between the PCAOB and SEC staffs and we look forward to continued collaboration and updates from the Board and its staff about developments in these and other programs.
An important aspect of the Commission’s oversight function is to ensure that the PCAOB has adequate funds to fulfill its mission. It is also incumbent upon the PCAOB to be good stewards of those funds and to use them in their most effective manner and to continually look for more efficiencies and cost savings.
The PCAOB’s 2017 Budget represents a 4.2% increase over the 2016 Budget and a 6.2% increase over the amount the PCAOB expects to spend in 2016. Several Board Members have noted that the PCAOB appears to be nearing a steady-state with the scope of its core programs of inspections, standard-setting, and enforcement remaining substantially unchanged in recent years. I encourage the Board to continue to take a hard look at their funding and expenses to identify possible savings and efficiencies that will allow the PCAOB to fully perform its mission, but also give careful consideration to the reasonableness of the level of the accounting support fee that is levied to support it. In this regard, I appreciate that the Board, in response to Commission suggestions, did find savings in its budget for 2017, including through greater automation and better space utilization. I will also expect, and as also call for by the Commission, that the PCAOB will undertake and complete a thorough study of operational efficiency and budgetary needs and submit a report on that study to the Commission no later than March 15, 2017, which is when the PCAOB’s 2018 budget outlook is due to the Commission.
I would again like to thank Chairman Doty, the other Board members and the PCAOB staff for all they do to further the vital work of the PCAOB. The Commission remains strongly committed to supporting the work you perform on a daily basis in furtherance of the public interest.
Finally, I want to thank the staff at the SEC, including Chief Accountant Wes Bricker, Deputy Chief Accountant Marc Panucci, Jeff Minton, Kevin Stout, Giles Cohen, Mark Jacoby, Khalid Shah, and Matt Hodder, all in the Office of the Chief Accountant, as well as CFO Ken Johnson and Rick Taylor from the Office of Financial Management, who all worked hard and constructively on the review of the PCAOB’s 2017 budget and accounting support fee.
I will now turn to Wes Bricker, the SEC’s Chief Accountant, for his remarks, to be followed by remarks from CFO Ken Johnson, and Chairman Doty. We will then proceed to questions and comments from the Commissioners and a vote on the staff’s recommendation to approve the PCAOB’s 2017 budget and support fee.