With majority support from the Securities and Exchange Commission—all two of them, that is—the Public Company Accounting Oversight Board has finalized its 2016 budget with a 12-percent increase in fees charged to public companies to support it.
Only SEC Chair Mary Jo White and Commissioner Kara Stein supported the PCAOB’s $257.7 million budget for the current year, which charges an “accounting support fee” of $220.9 million to public companies and an additional $32.4 million to broker-dealers. Commissioner Michael Piwowar said he could not support the budget because he believes the support fee is too high. The remaining two SEC positions are vacant. Terms for Daniel Gallagher and Luis Aguilar expired in 2015 with no one appointed to replace them.
The PCAOB’s 2016 budget represents a 12-percent increase in the 2015 accounting support fee of $227 million, said Piwowar. The support fee is essentially a tax on entities that are audited by firms that the PCAOB regulates. “Simply stated, a more modest budget should have been presented for 2016,” he said. Piwowar particularly objected to language in the PCAOB’s 2016 budget that could allow increases in total board compensation through lump-sum merit pay rather than increased base salaries.
The PCAOB’s 2016 budget represents an increase of about 3 percent over the 2015 budget of $250.9 million, but an increase of about 5 percent over the PCAOB’s 2015 estimated spending of $244.9 million. The 2016 increase in accounting support fee is bigger relative to the increase in the budget because the PCAOB’s 2015 budget relied on unspent funds in 2014 that were carried forward. The 2016 budget also relies on unspent funds from the prior year, but the number is smaller, the SEC said.
The SEC “must continue to make sure the PCAOB has the necessary funds to fulfill all aspects of its important mission,” said White, who has spoken critically of the PCAOB in the past and who has not yet acted to reappoint PCAOB Chairman James Doty after his term expired in 2015. Unlike the two commissioners who left their posts, however, Doty continues to serve as chairman of the five-member PCAOB even in the absence of a reappointment.
While supporting the budget, White also implored Doty to “take a hard look” at funding and expenses in the coming year, including around compensation, and identify possible savings or efficiencies that would still enable the PCAOB to fulfill its mission “but also have due regard for the reasonableness of the level of the accounting support fee that is levied to support it.”
Doty outlined his planned agenda for the coming year with the approved funding, including a proposal soon on auditors’ use of the work of others outside the principal audit firm, a new proposal on the auditor’s reporting model, and the exploration of “appropriate courses of action” as the PCAOB remains closed out of China.
The PCAOB published a discussion paper in 2015 questioning whether existing standards are adequate around the auditor's use of the work of specialists, or whether the board should revisit the rules. Doty told the three commissioners he hopes the PCAOB will “be in a position to issue a proposal in the next few weeks.”
Also coming soon, said Doty, is a new proposal to expand the current audit report. The PCAOB began that journey with a concept release in 2011 and a proposed auditing standard in 2013. The board sought consensus on requiring auditors to include in the audit report a summary of “critical audit matters,” or close calls in the audit that led to the greatest focus.
As for China, where the PCAOB has been trying for years to gain inspection access to registered firms, Doty said the board is continuing discussions with authorities in China but also working with SEC staff “as we consider our options” to regulate those firms. “Recent financial volatility in China underscores the importance of protecting investors in our markets,” he said.