The Public Company Accounting Oversight Board (PCAOB) submitted a 2007 budget proposal of $136.4 million, which would be an increase of $5.5 million or about a half a percent over the current budget.
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The budget for calendar year 2007 is subject to approval by the Securities and Exchange Commission (SEC), which will consider the proposal at its meeting December 4.
As required by the Sarbanes-Oxley Act of 2002, the board’s budget, less registration fees collected from accounting firms in 2006, will form the basis for 2007 assessments of accounting support fees, a statement from the PCAOB said. The board will also use working capital reserves to reduce the overall 2007 accounting support fee by $10 million. The 2007 budget projects that the PCAOB will assess $122.4 million in accounting support fees next year.
The PCAOB is the private-sector, non-profit corporation, created by the Sarbanes-Oxley (SOX) to oversee the auditors of public companies. Most of the budget is allocated to personnel costs and technology,
Personnel costs are over 71 percent of the 2007 budget. “Attracting, compensating, and retaining talented people, particularly auditors, require significant resources,” board member Daniel L. Goelzer wrote in a budget statement.
The PCAOB projects a total staff of 519 by the end of 2007. Of those, approximately 250 would be inspections staff, the board said. This compares to an estimated total headcount of 480, with an inspections staff of 230, ending 2006.
The inspection program is by far the greatest expense. Of the proposed $136.4 million, $55.7 million would be allocated to the Division of Registration and Inspections. Other categories, such as information technology, are support inspections, Goelzer’s statement said.
PCAOB board member Charles D. Niemeier said that the SOX inspections are making an impact. “After four years of inspections of the largest firms, we have seen significant changes in auditors’ attitudes toward their accountability,” he said.
“I have heard from numerous auditors who, with the support of their firms, say they are auditing better than ever before. This is in part because auditors understand that their work is much more likely to be reviewed, either by the PCAOB’s inspectors or by their firm’s internal reviewers, who in turn are judged in our inspections each year.”
Technology is the second-largest line item in the PCAOB 2007 budget, at $23.3 million. “Public company auditing increasingly takes place in an electronic, rather than a paper, world, and sophisticated use of technology offers us opportunities to do our work more efficiently and effectively,” Goelzer said. “However, cutting edge IT support does not come cheap.”
Goelzer expects the SEC to approve the budget at the December 4 meeting, noting that the process was substantially smoother this year. “In 2006, we were still responding to SEC questions about the budget well into the New Year, and the Commission didn’t actually approve the 2006 budget until April 13,” he said.
Niemeier and Goelzer credit the improved budget process to the new budget officer position, which was filled by Bill Wiggins, formerly of the SEC staff. “This year, there has been closer dialogue,” Goelzer said.