Economic Analysis Key Piece of PCAOB 2014 Budget
by Terri Eyden on
By Jason Bramwell, Staff Writer
The Public Company Accounting Oversight Board (PCAOB) approved its 2014 fiscal year budget of approximately $258.4 million and its 2013-2017 strategic plan – both of which include an emphasis on economic analysis being used in the PCAOB's work.
The budget is $12.8 million, or 5 percent, higher than the board's 2013 budget of $245.6 million. The strategic plan for 2013-2017 serves as the foundation for the budget, guiding the PCAOB's programs and operations.
"The $258 million budget supports the strategic plan and properly reflects the board's funding needs to maintain quality programs, effective oversight, and dedicated people as we seek to fulfill the board's investor protection mission," PCAOB Chairman James Doty said in a written statement.
The chairman said one of the most significant elements of the board's budget and related strategic plan is the use of economic analysis. While the PCAOB has used economists in its Office of Research and Analysis for many years, the board hired John Powers, PhD, as its first economist in the Office of the Chief Auditor this past May.
"We plan to hire additional economists to work with him, to embed economic thought and tools in the standard-setting process, from the early development of ideas and alternatives to solve problems in audit practice, through the stages of soliciting public comment and preparing a new standard," Doty stated during the meeting. "These economists will also work closely with economists in our Office of Research and Analysis, who can provide a fresh review of the economic effects of the standards."
Previously, the PCAOB announced the formation of a new Center for Economic Analysis, which will be headed by renowned University of Chicago economist Luigi Zingales, PhD. The center is expected to begin operations in early 2014.
"Under Professor Zingales' expert leadership, we plan to attract other top economists to work in the center to advise us on how economic theory, analysis, and tools can enhance the effectiveness of PCAOB programs," Doty noted. "In addition, we hope to spur research on the role of the audit in capital formation and investor protection."
Highlights of 2014 Budget
- The total accounting support fee for 2014 is $252 million, with approximately $225 million allocated to public companies and $27 million to broker-dealers.
- The budget assumes that the PCAOB will reach a 2014 year-end projected total of 864 staff. The Division of Registration and Inspections accounts for 533 of these positions, and the Division of Enforcement and Investigations accounts for sixty-six positions.
- As of November 13, 2013, there were 2,234 public accounting firms registered with the PCAOB, including 913 based outside of the United States.
Board member Jay Hanson said he is a strong supporter of economic analysis in financial regulation and applauded PCAOB staff's progress in this area.
"Already, I have learned a great deal from our economists, and I believe that the PCAOB's regulatory activities will be stronger and better tailored to relevant problems as a result of their involvement," he stated during the meeting. "The Center for Economic Analysis should provide a strong basis for the ongoing development of our economic analysis framework and tools. That said, I believe that we need to take care in implementing this new function to provide the appropriate focus for the center and to ensure close coordination with the existing offices and divisions of the PCAOB to avoid overlap in their efforts or miscommunications about roles."
Looking forward, Doty said he hopes the PCAOB's proposal to change the auditor's reporting model will "engage the public in a broad and constructive debate about the role of the audit fostering broader and cheaper access to capital for businesses and entrepreneurs."
The strategic plan also highlights the PCAOB's initiative to develop audit quality indicators that focus not only on financial statement audit quality measures at the firm level, but also at the engagement level, according to board member Steven Harris.
"Developing such indicators should allow firms to compete first and foremost based on audit quality and should be of value not only to audit firms, but to audit committees, investors, and PCAOB inspectors alike," he stated during the meeting.
Board member Jeanette Franzel added the audit quality indicator project will continue into 2014, but it is "off to a great start, with significant research, analysis, and outreach that is leading to the development of a concept release."
"In addition, the staff has set a goal of leveraging this work in 2015 to produce a concise summary report on the state of audit quality," she stated during the meeting. "I am enthusiastic that these efforts will result in new information, insights, and tools that will make a difference in the market for audit services and advance quality auditing for the benefit of the investing public."
The 2014 budget is subject to approval by the US Securities and Exchange Commission (SEC). The SEC's rule on the PCAOB budget requires the PCAOB to maintain a strategic plan.
A summary of the 2014 budget will be available on the PCAOB website once it is submitted to the SEC for consideration. The PCAOB strategic plan also will be available at the same time. Both documents will be available on the Operations web page under the "About the PCAOB" tab on the website.
- PCAOB Announces Center for Economic Analysis; Names Luigi Zingales Founding Director
- PCAOB Proposes New Standards to Enhance Auditor Reporting
You may like these other stories...
Former DOJ Tax Division head Kathryn Keneally joining DLA Piper in New YorkGlobal law firm DLA Piper announced on Thursday that Kathryn Keneally, the former head of the US Justice Department Tax Division, is joining the firm...
Read more from Larry Perry here and in the Today's World of Audits archive.In my last article, I summarized major differences between principles in U.S. GAAP and the Financial Reporting Framework for Small and Medium-...
OECD calls for coordinated fight against corporate tax avoidanceDavid Jolly of the New York Times reported that dozens of countries with the most advanced economies have agreed on principles for concrete action to prevent...
Upcoming CPE Webinars
In this jam-packed presentation Excel expert David Ringstrom, CPA will give you a crash-course in creating spreadsheet-based dashboards. A dashboard condenses large amounts of data into a compact space, yet enables the end user to easily drill down into details when warranted.
This webcast will include discussions of important issues in SSARS No. 19 and the current status of proposed changes by the Accounting and Review Services Committee in these statements.
Kristen Rampe will share how to speak and write more effectively by understanding your own and your audience's communication style.
Amber Setter will show the value of leadership assessments as tools for individual and organizational leadership development initiatives.