I support the proposed 2014 budget and the 2013-2017 strategic plan being presented to the Board today. The staff has worked diligently to consider the strategies and resources needed to fulfill the PCAOB's mission of protecting investors and furthering the public interest in the preparation of informative, accurate and independent audit reports.
The proposed 2014 budget of $258.4 million represents a 5.2 percent ($12.8 million) increase over the approved 2013 budget. As discussed in the Notes to the proposed 2014 budget, the PCAOB was subject to the President's March 1, 2013 sequestration order, which had the effect of reducing the PCAOB's planned spending in 2013 by $12 million (from $245.6 million to $233.6 million). The proposed 2014 budget represents an increase of 10.6 percent ($24.8 million) over the 2013 revised spending plan.
Current projections are that the PCAOB's actual spending for 2013 will be $9.2 million less than the revised spending plan, or an actual spending amount of $224.4 million. The proposed 2014 budget represents an increase of 15.1 percent ($34.0 million) more than our projected actual spending for 2013.
In my view, much of the difference between the projected actual spending for 2013 and the 2013 revised spending plan is attributable to the conservatism we applied to our spending as we were facing uncertainty during the first several months of the year related to how the sequestration would impact the PCAOB's 2013 budget. The PCAOB will be subject to sequestration again in 2014, consistent with the President's April 2013 sequestration order.
The proposed 2014 budget reflects a balance of operational needs and a judicious allocation of resources, while restoring activities that were impacted by the budget sequester in 2013 and the related conservatism that we applied to our spending.
During 2014, we will continue to develop our broker-dealer inspection program, expand our inspections overseas, and invest in information technology that will enhance our operational effectiveness.
In addition, we will continue to refine our existing programs and activities, particularly through investments in training and through expansion and development of our capabilities in economic research and analysis. In the remaining areas of our core programs and activities, we have begun to see a "leveling off" of organizational growth. In this context, the PCAOB will continue to mature as an organization under a relatively stable size and structure.
As I remarked at last year's open meeting on the 2013 budget and strategic plan, I place a high value on the effective use of a strategic planning process to guide our programmatic and budgetary decisions. Our planning and budgeting process covers many months and involves the combined efforts of all PCAOB offices and divisions, the Board, and the SEC staff. I commend all involved for the effort they made and the thoughtfulness and dedication they contributed.
The strategic planning process has provided significant value in clarifying our thinking and making decisions about the future direction of our programs and about program operations and resources. The PCAOB has made improvements in the process this year that have strengthened our controls and the outcome of our planning.
An illustration of the value and impact of this process was seen last year when the Board identified in its strategic planning the need to focus on six specific near-term priority initiatives. In my view, the synergy and outcomes from these near-term priorities has helped the PCAOB leverage its strengths in order to further investor protection through high quality and transparent audit oversight activities. We have made good progress on those initiatives in 2013 and, through our most recent strategic planning process, have refined them, incorporated them into the updated strategic plan, and added other initiatives.
I will briefly recap the progress made and current status of the six near-term initiatives that we set forth in last year's strategic planning and budget process.
1. Improving the timeliness, content and readability of inspection reports.
The staff has made notable progress in clearing the backlog of older inspection reports while, at the same time, focusing on timelier issuance of more current inspection reports. In addition, the staff has begun to consider ways to improve the content and readability of inspection reports and general reports going forward. I am enthusiastic about the progress being made, and future plans, including staff's plan to issue a report in the spring of 2014 that would summarize the results of 2012 and 2013 inspections. Providing timely and useful information about the PCAOB's inspection results is a key element of effective oversight and has a constructive impact upon auditing practice and quality. I also encourage the staff to develop an approach for publishing summary information on inspection results on an annual basis and as soon as possible after completion of inspections.
2. Improving the timeliness of remediation determinations and providing additional information about the PCAOB's remediation process.
The staff has also made notable progress in clearing the backlog of older remediation determinations and related recommendations to the Board. This process was especially difficult due to the number of outstanding complex, large-firm remediation determinations that covered multiple years. In addition, the staff developed and published information about the quality control remediation process, including the criteria used to assess a firm's remedial actions. While providing additional transparency about PCAOB processes, the information also provides firms with additional guidance to assist with the remediation of quality control problems that have been identified during PCAOB inspections. The staff is currently considering publishing additional information about the remediation process, including information based on the staff's experiences with remediation activities across firms.
3. Initiating a project to identify audit quality measures, with a longer term goal of tracking the application of such measures to global network firms and reporting on the results over time.
This project is off to a great start, with significant research, analysis, and outreach that is leading to the development of a concept release on audit quality indicators. The concept release will provide the public and all interested parties an opportunity to provide input into further analysis and future steps in the project. This project has the potential to increase the focus on audit quality by providing additional insight for the benefit of audit committees, investors, and others, and thus enable public company audit stakeholders to focus more effectively on the importance of high audit quality. Audit quality indicators can also inform the Board's policy and inspection decisions, aid the work of other regulators, and assist audit firms themselves in quality control and remediation efforts. This project will continue into 2014. 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. 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.
4. Enhancing the PCAOB's processes and systems to improve the analysis and usefulness of PCAOB inspection findings, including a comparative analysis across firms and over time, in order to better understand audit quality in firms and better inform the PCAOB's standard-setting and other regulatory activities.
This project is continuing, and provides key support for the PCAOB's oversight activities and priorities. The Board continues to make investments in information technology to facilitate the analysis of audit market characteristics, inspection and other regulatory oversight data, and other relevant information. In particular, the Division of Registration and Inspections and the Office of Research and Analysis have enhanced their internal analytical capabilities and their support to other divisions and offices. In addition, we continue to coordinate our enforcement and other regulatory activities with relevant SEC staff and related initiatives undertaken by them. Going forward, our staff can leverage these improvements and additional expertise, including that of new staff economists, to identify other analytical tools and ways to communicate useful analysis to our stakeholders.
5. Enhancing the framework for the PCAOB's standard-setting process in order to improve the effectiveness of the process as well as the standard-setting project-tracking information provided to investors and the public.
Our Chief Auditor has proposed to the Board an updated and enhanced standard-setting framework that includes overarching tools, principles, and policies and processes associated with PCAOB standard setting. The standard-setting framework will be an important reference point as we further integrate economic analysis into our standard-setting process. In that regard, staff has also drafted internal guidance on the use of economic analysis in standard setting, which we are currently reviewing. Both of these draft documents, the standard-setting framework and the internal guidance on the use of economic analysis, will be important working documents that staff can continue to refine and develop with experience and with the further addition of the economic expertise that we plan to bring into the organization in 2014. This work will provide a foundation for future policymaking at the PCAOB.
6. Enhancing the PCAOB's outreach to, and interaction with, audit committees to constructively engage in areas of mutual interest, including auditor independence and audit quality.
The Board has taken a number of steps to reach out to audit committees to explore audit oversight issues and share information about PCAOB activities and inspection results. These activities will continue in 2014 through our participation in conferences and meetings with audit committee members and, potentially, town-hall or focus group meetings with audit committees. After conducting a number of these activities, the Board will need to determine how to integrate the feedback heard and insights gained into its oversight processes in order to help maximize the effectiveness of both the PCAOB and audit committees in promoting high quality, independent audits that protect investors and the public interest.
In addition, as a result of our 2014 strategic planning process, the Board is undertaking two other significant initiatives.
1. Enhance the PCAOB's economic analysis function, including the establishment and integration of a Center for Economic Analysis.
I support the Chairman's proposal to establish a Center for Economic Analysis. I agree that there will be a long-term benefit to our encouraging the specific interest of economists into the role and relevance of audits in the capital markets, and incorporating insights from the discipline of economics into audit regulatory activities. It will also facilitate our initiative to more fully and explicitly incorporate economic analysis into our rulemaking and operational processes.
As we begin to implement this initiative, the Board will need to develop specific plans and details regarding the roles, responsibilities, resources, and efforts of the new Center as well as those of the other PCAOB offices and divisions that will interact with the Center.
2. Adopt strategic performance measures and benchmarks.
I am encouraged that the Board will dedicate time and effort to further developing performance measures for PCAOB programs and activities in 2014. An important element of strategic management is the use of performance measures and benchmarks to monitor progress and evaluate results. The Board's current performance measures are largely process- and output-based measures (e.g., number of reports processed, or processed within a given timeframe). But after having experienced significant growth and expansion in PCAOB programs in recent years, it is important to continue to refine these measures and adopt, where appropriate, outcome- and impact-based measures. It will help us to strengthen our ongoing oversight processes if we regularly track and assess the results of our strategies and their significance to our goals and objectives, which, ultimately, are to protect investors and the public interest. In this regard, we might look to the performance measures of other financial regulators domestically and internationally. I am also encouraged by the support of the SEC staff for continued development and use of performance measures.
Finally, last year, I commented on the important initiatives and strategies for the Office of Administration to achieve mature and optimized administrative functions that will help ensure that the PCAOB's programs are supported in an efficient and effective manner. Those initiatives reflect risk management principles for the most effective use and stewardship of PCAOB resources, and include the areas of budgeting, financial reporting, information technology, and human resources management.
I am pleased that we made progress in these areas, including a reorganization and increased focus on risk management and compliance activities; implementation of the IT Governance Framework in managing our technology-related resources to help advance the PCAOB's mission; expanded leadership and development training; and refinements to our process of assessing our internal control over financial reporting.
In the area of human resources, I am encouraged that we are exploring the adoption of various human resource management best practices, including expanded non-monetary compensation tools, and a comprehensive employee engagement survey that can be monitored over time. I look forward to continued improvements in these areas as well as in our strategic planning and budget processes.
I believe that the budget we are voting on today appropriately reflects the Board's strategic priorities and resource needs for 2014 to fulfill our obligation to improve audit quality to protect investors and the public interest, while continuing the organization's evolution as a mature regulator.
In closing, I would like to join my fellow Board members in thanking the staff for their efforts in connection with the strategic plan and budget we are adopting today. I would also like to thank SEC staff for their questions, comments, and feedback during the process of developing the strategic plan and budget.
 Any criticisms of a firm's system of quality control in a PCAOB inspection report is nonpublic when the report is issued, and will remain nonpublic only if the firm addresses the criticism to the Board's satisfaction no later than 12 months from the date of the report. The Board makes such determinations based on an evaluation and recommendation by PCAOB staff of firm remediation submissions. Additional information on this process is available at http://pcaobus.org/Inspections/Pages/default.aspx.