The Public Company Accounting Oversight Board today approved a budget for calendar year 2006 that will allow for a reduction in the support fees paid by publicly traded companies.
The Board also approved technical amendments to its ethics and independence rules regarding tax services that do not change the substance of the rules.
The budget as approved contemplates approximately $128.4 million, net of interest, in outlays for calendar year 2006, a figure that will allow the Board to fulfill its statutory mandate under the Sarbanes-Oxley Act of 2002 to oversee the auditors of public companies in order to protect the interests of investors and further the public interest in the preparation of informative, fair, and independent audit reports.
Pursuant to the Act, the Board’s budget, less registration fees collected from accounting firms in 2005, will form the basis for the Board’s 2006 assessment of accounting support fees on public companies. The Board will also utilize an excess to its working capital reserve to reduce the 2006 accounting support fee.
The 2006 budget projects that the Board will assess $109.3 million in accounting support fees as opposed to $136.1 million in 2005.
The majority of the Board’s outlays will be for salaries and related expenses, primarily related to the hiring and retention of the experienced auditors needed to conduct inspections of registered public accounting firms. To date, 1,586 public accounting firms have registered with the Board, including 640 firms based outside the United States. Firms with more than 100 public company clients must be inspected annually; firms with one to 100 public company clients must be inspected every three years.
By the end of 2005, the PCAOB estimates total headcount to be 427 with a total inspections staff, including inspectors, of 200. The PCAOB expects to grow to a total headcount of up to 537 employees by year-end 2006 with a total inspections staff, including inspectors of up to 280.
The Board’s budget includes expenses for staff training, significant travel and the maintenance of seven offices outside the Board’s Washington, D.C., headquarters to support inspections staff.
The budget also reflects a continuation of investment in information technology to support the Board’s statutory programs.
On July 26, 2005, the Board adopted certain rules related to registered public accounting firms' provision of tax services to public company audit clients. The rules were designed to address certain concerns related to auditor independence when auditors become involved in marketing or otherwise opining in favor of aggressive tax shelter schemes or in selling personal tax services to individuals who play a direct role in preparing the financial statements of public company audit clients.
As part of this rulemaking, the Board adopted an ethics rule, Rule 3502, to codify the principle that persons associated with a registered public accounting firm should not cause the firm to violate relevant laws, rules, and standards. The rules were submitted to the Securities and Exchange Commission on August 2, 2005, for its approval, pursuant to Section 107 of the Sarbanes-Oxley Act of 2002.
After discussions with the SEC, the Board decided to remove the word “cause” from the title and text of Rule 3502. The amendment is intended to avoid any misperception that the rule affects the interpretation of any provision of the federal securities laws. The Board intends that the rule, as amended, should be interpreted and understood to be the same as the rule adopted by the Board in July.
In light of the time that has elapsed since their adoption, the Board has also decided to revise the effective dates for certain of the rules.
Combined with the time period since the rules’ adoption, the extension of the effective dates for these rules should allow reasonable time for affected firms to prepare internal policies and procedures, train their employees to ensure compliance with the new requirements, and, if necessary, terminate or complete any ongoing engagements covered by the rules in a professional manner.
The budget and the amendments to the Board's rules will be submitted to the Commission for approval, as required by the Sarbanes-Oxley Act.
The archived webcast of the Board meeting can be found on the Board’s Web site.