Statement on 2009 PCAOB Budget

The proposed 2009 budget would permit the Board to spend $157.6 million, and to end next year with a staff of 531. The budget represents an increase in authorized spending of about $13 million, or 9 percent, above the 2008 budget of $144.6 million and an increase of $26.6 million, or about 20 percent, over projected 2008 spending. I support the proposed 2009 budget and would like to briefly highlight several points.

First, personnel costs are nearly 72 percent of the 2009 budget. We have set high standards as to whom we will employ, particularly in the experience levels of our inspections staff. Attracting, compensating, and retaining talented people, particularly veteran auditors, require significant resources. The budget reflects those costs.

Second, in the Sarbanes-Oxley Act, Congress envisioned an oversight process driven by an active and timely audit firm inspection program. In 2009, the Board will allocate $69.6 million of its proposed budget, or 44 percent, directly to the Division of Registration and Inspections. Other Board units, particularly the Office of Research and Analysis and the Office of Information Technology, use their resources to support inspections. Further, much of the work of the Division of Enforcement arises from problems that are first uncovered in an inspection. At $12.2 million, Enforcement’s budget is second only to Inspections among the Board’s operating divisions. That level of funding for investigations and enforcement cases is an increase of about 13 percent over 2008, and underscores the accelerating pace of the Enforcement Division’s work.

Further, the 2009 budget reflects some changes in direction and emphasis. Three of these are particularly significant --

• In its recent report, the Department of the Treasury’s Advisory Committee on the Auditing Profession directed 16 recommendations to the PCAOB. Many would have far-reaching effects and would require potentially complex rulemaking or other steps. Depending on how the Board decides to proceed, addressing the Treasury Committee recommendations could have substantial resource impact in 2009, particularly on the Office of the General Counsel, the Office of the Chief Auditor, and the Office of Research and Analysis.
• Foreign inspections are becoming an increasingly demanding part of the Board’s work. The Board has conducted about 120 foreign inspections. We anticipate conducting over 45 foreign inspections this year alone, and the foreign inspections workload will only increase in the coming years. In addition to the time and travel demands this work places on the inspections staff, foreign inspections increase the resources the Office of International Affairs must devote to developing and maintaining relationships with our non-U.S. counterparts.
• The budget anticipates a significant increase in our standard setting activities during 2009. At the most recent meeting of the Standing Advisory Group, the Office of the Chief Auditor outlined an ambitious agenda to update and strengthen several key auditing standards. In addition, 2009 should be the year in which the Board makes real progress on its commitment, first announced in 2003, to review all of the existing, interim auditing standards with a view to deciding whether each standard should be made permanent or should be revised. This increase in standard setting work will require the Chief Auditor to deploy more resources.

Given these developments, and the stresses on financial reporting from the current economic environment, a question might be raised as to whether the 2009 budget will be adequate. It is certainly possible that factors that we do not fully anticipate today will cause the Board to need more resources than this budget provides. However, the budget already reflects significant growth, including a net staffing increase of 46 people over the projected December 31, 2008 headcount. Based on what we know now, this level of funding should be adequate to do our job.

Today’s meeting is the end of a process that began last Spring, and I want to thank everyone who has worked on the budget, especially Angela Desmond, the Board’s Chief of Staff, Yoss Missaghian, Senior Budget Analyst, and particularly Bill Wiggins, the Board’s tireless, but unflappable, Budget Officer.