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 FY 2012 PCAOB Budget and 2011-2015 Strategic Plan 

DATE Nov. 30, 2011 
SPEAKER(S): Daniel L. Goelzer, Board Member 
EVENT: PCAOB Open Board Meeting 
LOCATION: Washington, DC 

2012 PCAOB Budget

The proposed 2012 budget, if approved by the SEC, would authorize the Board to spend $227.7 million next year. That would be an increase of about $23.3 million, or 11 percent, over the 2011 budget. The size of the budget is largely driven by the size of the staff, and headcount would increase from an estimated 692 at the end of 2011 to 810 at the end of 2012. I recognize that, in a time of national economic challenge, this is a substantial level of resources. However, I support the 2012 budget and would like to highlight four points to place it in context.

First, the Board’s primary tool for accomplishing its investor protection mission is the inspections program. We are required to inspect in excess of 1,000 registered public accounting firms – domestic and foreign -- that audit (or participate in auditing) U.S. publicly-traded companies. As a result, the lion’s share of Board resources must be devoted to inspections work. Approximately $113.2 million, or 49.7 percent, of the 2012 budget will be used to fund the Division of Registration and Inspections. That reflects an increase over 2011 of about 23.5 percent in dollars and of 90 staff positions. In addition, a considerable portion of the resources of several other units – such as the Office of Research and Analysis, the Office of Information Technology, and the Office of International Affairs – directly support the inspections program.

Second, the credibility and effectiveness of the inspections effort depends on what William O. Douglas once called the “shotgun behind the door” of vigorous enforcement. About $20 million, or 8.8 percent, of the 2012 budget, will be allocated directly to the Division of Enforcement and Investigations. That reflects nearly a 15 percent increase in budget dollars, and an increase of 8 staff positions over 2011 year-end. Enforcement’s workload has grown steadily over the last several years. Further, the fact that Board enforcement proceedings are non-public means that a significant percentage of its cases turn into resource-intensive litigation, rather than settlements.

Third, in 2012 the Board intends to place more emphasis on non-U.S. inspections. This year we will conduct 43 inspections outside of the United States. The budget anticipates that next year that number will more than double to 90. The Board has been successful in opening up more of Europe to inspections. In addition, we have sharpened our focus on multi-national audits and on the cross-border quality controls of the large global auditing networks. An audit failure on the other side of the globe can have serious consequences for U.S. investors, and the Board’s inspection program is geared to that reality. Because of the burdens of travel, translation, and logistics, foreign inspections are more costly, and the 2012 budget is impacted accordingly.

Fourth, a key driver of the 2012 budget increase is the fact that, in the Dodd-Frank Act, Congress directed the Board to take on new responsibility for the auditors of roughly 5,000 SEC-registered broker-dealers. This year the Board took the first steps in its interim inspection program of these firms. In 2012, that program will expand and gather momentum. In order for that to happen, we need staff members that are knowledgeable about the brokerage industry and its accounting and auditing challenges. About one quarter of the Board’s total projected 2012 headcount increase, or 30 additional staff, will be devoted to implementation of the Dodd-Frank provisions that require the Board to oversee the auditors of securities broker-dealers.

This is the tenth PCAOB annual budget on which I have cast a vote. The first budget, for the year 2003, provided for $68 million and year-end staffing of 216. When that start-up budget was approved, the Board consisted of little more than an outline in a newly-enacted statute and a handful of enthusiastic staff members. It has grown into a formidable, nationwide organization with a critical role in protecting investors and promoting confidence in audited public company financial reporting. Certainly, however, much remains to be done to fully realize Congress’s vision in creating the PCAOB. I believe that the 2012 budget will give the Board the resources it needs to continue that work and to meet the challenge of bolstering trust in the integrity of our capital markets.

2011-2015 Strategic Plan

I want to switch briefly to the strategic plan. From 2003 to 2007, the Board concentrated on putting the building blocks of the organization in place. Once the Board matured beyond that initial phase, it turned to strategic planning to assist in setting priorities and mapping progress. Since 2007, the SEC's budget rule has required that the Board maintain a five-year strategic plan setting forth the Board's long-range vision for its operations.

The plan before us today reflects the evolution of the Board’s priorities. Unlike the more tactical plans of earlier years, which were aimed at building a new regulatory framework, this plan is structured around three large goals -- knowledge, relevance, and people. The plan is an effort to create a strategic vision for a mature but dynamic organization. For the first time, it is also an effort to look candidly at both the Board’s strengths and its weakness, and at both the opportunities and the threats we face.

Since the plan update process began last Spring, Chairman Doty has encouraged us all to think creatively and innovatively about how to make the Board a top notch regulator committed to the public interest. He has done much of the drafting himself, and the result is a visionary plan that will, I believe, serve the Board well in the coming years.

* * *

Preparing the annual budget and updating the strategic plan is a resource-intensive year-round effort, and I want to conclude by thanking all of the staff members that were involved. Each office and division plays a role, and it is not possible to single out everyone who made a significant contribution. I would, however, like to particularly thank Darrell Pauley, the Board’s Chief Administrative Officer, for his thoughtful oversight; Bill Wiggins, Deputy Chief Administrative Officer; and all of the members of the budget staff, especially Yoss Missaghian, for the hard work and long hours they have put in. Also, my Special Counsel, Phoebe Brown, and Chairman Doty's Special Counsel, Samantha Ross, have traditionally played key roles in the strategic plan, and this year was not an exception.

Finally, I would also like to recognize our colleagues at the SEC who devoted many hours to reviewing and commenting on both the budget and the plan. As always, their help and their support for the Board’s mission have been invaluable.

 

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