The proposal before us today provides for an increase in the PCAOB’s budget for 2009 compared to 2008. I am comfortable that such an increase is appropriate. Experienced staff, including expert auditors, are our most significant asset, both in terms of cost and in terms of what makes us effective. The proposed increase reflects our continued need to ramp-up our staffing, which has grown at a slower pace than optimal given the employment environment we have faced since inception. The PCAOB looks for unique skills, and those skills are still in high demand, even considering the slowing economy. Based on our past hiring experience, it would not be realistic to think we could find and hire more than the 46 additional staff proposed.
While I think the overall staff increase is appropriate, the Board will need to continue to consider how to allocate those staff among our programs. Today’s budget may have touched the required procedural milestones to justify approval on an overall basis, but still leaves to be addressed how the Board should use its resources.
For example, in one significant area, the budget does not adequately analyze and provide for work that I believe we need to do to protect investors in U.S. securities. Specifically, I continue to have concerns about the scope of our inspections of non-U.S. firms, which to-date have been limited to engagements in which the firms served as the principal auditor and signed the opinion. The inspections excluded engagements to audit offshore operations of U.S.-based companies. The scope of this work, which the profession calls “referred work,” can be substantial. On an overall basis, it presents a potentially significant risk to U.S. markets. The proposed inspection budget does not address this risk, but rather assumes we will continue in 2009 to limit non-U.S. inspections to opinion work. In my view, the Board will have to dedicate additional resources to cover these engagements, including not only inspection resources but also resources from our Office of Research and Analysis.
In addition, we have many new non-U.S. inspections ahead of us, and many of those inspections will be in countries in which we have not inspected previously. As the Board refines its non-U.S. inspection policy, we may find we need more staff in Office of International Affairs than the one additional person the proposed budget assumes.
I support the overall proposed budget, though, because there are other areas of the budget that I believe provide for more funding than is required. The Board has the discretion to reallocate resources among program areas throughout the year, up to certain limits set forth by an SEC rule. If it’s necessary to go beyond those limits, the Board may seek approval from the SEC to do so.
Despite my concerns, I want to express my appreciation for our budget office, Bill Wiggins and Yoss Missaghian. Your work is immensely important to our mission.