Board Approves Revised 2005 Budget

Washington, D.C., Dec. 30, 2004

The Public Company Accounting Oversight Board today approved a revised budget for calendar year 2005 reducing the Board’s 2005 accounting support fee from $152.5 million to $136.1 million.

The Board approved a revised budget of approximately $137.1 million in total anticipated outlays for calendar year 2005. While approximately $15.6 million less than the 2005 budget approved on October 26, 2004, the revised budget will continue to 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.

On October 26, 2004, the Board approved a 2005 budget of approximately $152.75 million. That budget was premised on the Board’s then-anticipated headcount of 300 by the end of 2004. From this baseline, the budget provided for a 50-percent increase in staffing during 2005, leading to an anticipated headcount of approximately 450 by the end of 2005. In the nine weeks since the Board adopted this budget, hiring has occurred at a slower-than-forecasted rate, such that the Board now expects to begin 2005 with 262 employees. In light of this development, the Board believed it appropriate to recalculate the 2005 budget from this lower baseline headcount. The result is a reduction in anticipated salary expense, and corresponding reductions in related benefits and payroll tax expenses.

As reflected in the original 2005 budget, the majority of the Board’s new hires are expected to be experienced auditors needed to conduct inspections of registered public accounting firms. To date 1,423 public accounting firms have registered with the Board in order to be able to audit the financial statements of U.S. public companies. Given the technical nature of the Board’s statutory mandates, the Board believes an experienced and highly skilled staff is essential to protect the interests of investors in informative, fair and independent audit reports on the financial statements of public companies.

As provided for in the Act, the Board has and will continue to set staff salaries “at a level that is comparable to private sector self-regulatory, accounting, technical, supervisory, or other staff or management positions.” While the Board has not yet considered salary adjustments for 2005, the revised budget anticipates that, in light of the tight job market for highly-skilled auditing professionals, the Board may need to reevaluate compensation in order to retain, and continue to attract, the talented and experienced professionals necessary for the Board to accomplish its mission. Like the original 2005 budget, the revised budget allows the Board to take this step if necessary, although with significantly less flexibility to respond in the event of a further tightening of the job market for relevant professionals. This risk is exacerbated by the fact that the Board approves a single budget as the basis for establishing the funds it will need to maintain operations for an entire calendar year.

In addition, anticipated expenses for both employee training and employee recruiting and relocation have been reduced in the revised 2005 budget. These reductions are primarily due to revised assumptions about the per employee cost of offering these benefits. In sum, the combined effect of changes in the anticipated personnel expenses discussed above reduces the Board’s budget by $12.2 million.

The revised budget also reflects certain additional potential cost savings in various line items in the budget. For example, the revised budget reflects a reduction in travel expenses due in part to the Board’s increased utilization of its regional offices for inspections professionals, and as a result of taking advantage of recently developed travel discount programs. The revised assumptions lower anticipated travel expenses by approximately $1.0 million.

In addition, the revised budget reflects a reduction of approximately $1.3 million in consulting and professional fees, based on the Board’s strategy to reduce reliance on consultants in 2005 as it continues to build its professional staff.

The revised budget also reflects a continuation of Information Technology expenses and capital expenditures in order to build critical IT applications to support the Board’s statutory programs. The revised budget reflects a reduction of approximately $1.0 million in budgeted IT capital expenditures due to relatively short delays in the anticipated start dates of certain IT projects.

Pursuant to the Act, the Board’s budget, less registration fees collected from accounting firms in 2004, will form the basis for the Board’s 2005 assessment of accounting support fees on public companies. This produces a 2005 accounting support fee of $136.1 million.