I would like to join my fellow Board members in thanking the staff of the PCAOB for their efforts in connection with the Strategic Plan and Budget we are adopting today. In addition to members of our Budget Office, who spent many months getting us here, we benefitted from the views and experience of staff members from every PCAOB Office and Division as we considered how best to achieve the Board's mission effectively and efficiently. I would also like to thank the staff of the Securities and Exchange Commission for their considered questions, comments and feedback.
The 2012-2016 Strategic Plan is intended, first and foremost, to be a high level roadmap for how the Board will achieve its mission to protect the interests of investors and further the public interest in the preparation of informative, accurate and independent audit reports. It is intended to be a dynamic document that the Board updates on a regular basis, taking into account new developments and recent experiences that may affect how we work toward achieving our goals. As we continue to mature as an organization, my hope is we will refine and improve our processes to efficiently achieve the intended uses of the Plan.
The Strategic Plan we are approving today is the result of the Board's analysis of how best to achieve its missions in light of its various strengths, weaknesses, opportunities and threats. Under the Plan for 2012-2016, the everyday business of the Board — registration, inspections, enforcement and standard setting — will continue. However, the Board also has identified a series of near-term priorities on which we intend to focus and which we will hopefully substantially implement beginning in 2013. These include:
- Improving the timeliness, content and readability of inspection reports;
- Improving the timeliness of remediation determinations and providing additional information on the Board's remediation process;
- Initiating a project to identify and report on audit quality measures;
- Enhancing our processes and systems to improve analysis and usefulness of inspection findings in order to better understand audit quality and better inform standard-setting and other regulatory activities
- Enhancing the framework for our standard-setting efforts in order to improve the effectiveness of the process and the project tracking information provided to the investing public; and
- Enhancing the Board's outreach to and interaction with audit committees
Each of these major priorities will involve a blend of acknowledging the hard work that went into our existing processes and the success of our staff and founding Board members in starting the organization, while recognizing the need to step back and holistically assess the current environment and needs for the future. All great organizations continually reassess their processes and outputs, and our ten year anniversary marks a milestone to acknowledge the past accomplishments and adjust and build for the future. I have a vision for what we need to do for these major priorities.
Credit goes to the Division of Inspections and Registration, which has worked hard to eliminate much of the inspection report back-log that existed in early 2011 and to decrease the time it takes us to issue inspection reports once inspection field work is complete. Next year, I hope we can study whether we can eliminate remaining obstacles to reducing further the time to issue reports, and do so without negatively affecting the quality and consistency of our processes. I hope also to consider, including through outreach to users of inspection reports, the structure, content and readability of our reports, keeping in mind the ultimate goals of fairness, balance and consistency in all of our activities.
I also hope to improve the timeliness of our remediation determinations and to consider potential improvements in the transparency to firms and others about our remediation process. A review of the criteria that is applied by the staff in making remediation recommendations is important and additional communications may lead to a better understanding of the Board's expectations in connection with firms' remediation efforts. Remediation, in my view, is our number one tool to improve audit quality, and maximizing its effectiveness must be at the top of our priority list.
A more ambitious — and longer term — project that we hope to initiate in 2013 is the identification of audit quality measures, with a goal ultimately to be able to track and report on such measures with respect to global network firms. I am hopeful that in 2013, we can begin to consider work that has already been done by other organizations in this area, leverage the experience and expertise of PCAOB staff in Inspections, Standards, Enforcement and Research and Analysis, and consider ways to seek broad input in connection with this important project. My personal goal is to have concrete data and analysis to evidence our effectiveness.
A related priority that will inform many of our activities is our plan to enhance our processes and systems to increase the analysis and usefulness of our inspection findings. Doing so will depend not only on information technology and process tools, but also requires a reconsideration of the manner and types of information that is gathered during PCAOB inspections. My goal is for the Board to move toward a framework where inspections gathers not only information about audit deficiencies, but also accumulates data about effective procedures and auditor behavior that the Board can utilize in evaluating firm remediation efforts and communicating best practices.
Our fifth near-term priority is to enhance our audit standard setting framework by focusing on the consistency and transparency of the criteria based on which projects are added to our standard setting agenda; consider whether and how better to cooperate with and leverage the work of other standard setters; and review our framework for seeking input from advisory groups and others. In addition to providing more consistency and transparency about our standard-setting process, I believe that such a framework, combined with more rigorous economic analysis, also will enable the Board to more effectively assist the SEC in satisfying the requirements of the JOBS Act with respect to new PCAOB standards.
Finally, the last near-term priority highlighted by the Board in this year's Strategic Plan — increased outreach to and interaction with audit committee members — will permeate and better inform all of these activities. In light of the crucial role played by audit committees in the financial markets, their investor protection mandate, and their unique perspective on the audit process, audit committees are an indispensable partner to the PCAOB as we endeavor to find the most effective means to improve audit quality.
In addition to these important near-term priorities, the Board also will continue to focus in 2013 and beyond on certain other ongoing efforts. For example, as it has been in years past, our international program will remain a key focus. Thanks to the efforts of our Office of International Affairs, which was supported by the Division of Registration and Inspections, the Office of Research and Analysis, and others, we have made great strides this year in gaining access to several key jurisdictions to conduct inspections, and we expect several others to join this group in 2013. Nevertheless, we continue to face challenges in this arena, including continuing obstacles in some countries and the impending expiration of the European Union's "adequacy determination," which must be timely renewed in order for us to have continued access to firms in the EU after July of 2013.
Also continuing from last year is the Board's focus on the PCAOB's Office of Information Technology and Office of Research and Analysis. In the last year, the Board has appointed experienced and energetic new leaders to manage the talented staff members in these groups, and I am encouraged by the progress that has been made in enhancing the focus, effectiveness and efficiency of these two important support functions.
Consistent with the goals and objectives set forth in the Strategic Plan, we are also approving today the PCAOB's budget for 2013. Coming in at just over $245 Million, the 2013 budget represents an increase of just under 8 percent over the budget for 2012.
The single largest factor driving this increase — approximately 65% — are personnel costs. While the Board is proposing to add 27 new positions for 2013, the budget also funds the annualized costs of employees who joined or will join the Board as planned in the 2012 budget, as well as training and modest performance based compensation increases. Of the 27 new positions funded in the 2013 budget, 21 will join the Division of Registration and Inspections. Most of these new inspectors will support the Division's interim broker-dealer program, while several others will supplement the issuer program.
Ultimately, approximately 52% of the 2013 budget (and 77% of the budget increase) fund inspections, not counting the overhead, information technology, and other administrative costs attributable to the work of that Division. We are also funding smaller increases in the Office of the Chief Auditor, the Division of Investigations and Enforcement, and the Office of Administration while the other Offices and Divisions will have budgets in 2013 that are relatively flat.
Included in the budget for the Office of Administration is the budget for the Office of Information Technology, where we are funding a $1.6 Million increase over last year's budget. The increase is driven in large part by shifting certain cost of major projects from 2012 into 2013. Without those shifting costs, the budget for the Office would be reduced from last year and represents what I believe is the absolute minimum to fund necessary information technology maintenance, vital security measures, and modest but much-needed, mission-critical improvement or development projects that permit the Board, among other things, to conduct inspections in almost forty jurisdictions around the globe.
I believe that the budget we are approving today appropriately increases the Board's resources where they are needed most to achieve our mission of improving audit quality. Our main focus has been and should continue to be the effective inspection of audit firms. Nevertheless, we recognize the difficult financial times in which we find ourselves, and we take seriously our commitment in our Strategic Plan to the careful stewardship of resources. I believe the proposed budget achieves that balance.