Statement on Proposed 2011 Budget

The proposal before us today provides for an increase in the PCAOB's budget for 2011 compared to 2010. I am comfortable that such an increase is appropriate. Experienced staff, including expert auditors, are our most important asset, both in terms of cost and in terms of what makes us effective. The proposed increase reflects our continued need to ramp-up recruiting such staff, which has occurred at a slower pace than optimal given the employment environment we have faced since the PCAOB opened its doors.

Our hiring challenges are not new. They have been discussed at every budget meeting since we began. But they have become a critical management problem, especially in our inspections. This is the first budget that does not fully fund those inspections. The deeper we get into inspections, the more problems we find, as demonstrated in the Board's recent report on inspections affected by the financial crisis.

Our inspections provide an important protection for investors. If we find problems early enough, we can focus firms on correcting both the individual audits as well as the overall quality control deficiency that allowed the problem. If we don't have sufficient inspection coverage, though, investors face the risk that an audit failure will manifest too late to prevent investor harm.

The PCAOB's budget for 2011 is premised on numerous assumptions related to its ability to hire staff. In particular, the Budget only funds the increase that, at this stage, it appears feasible to recruit next year — that is, 15 additional inspectors for our inspections of issuer audits. In order to set aside the money to fully fund our inspection program, the PCAOB anticipates requesting that the Commission approve an increase in the 2011 accounting support fee. Consistent with the Commission's Budget Rule, the PCAOB would not use the additional funds until the Board has demonstrated that it has overcome its recruiting difficulties, at which time the Board will submit a supplemental budget for SEC approval.

My preference is not to bifurcate this process. We know we need additional resources to do our inspections, both for our domestic inspections as well as our non-U.S. inspections. Given the continuing economic crisis both here and abroad, we know the pressures to fudge financial reporting or give some slack in audits will continue and may even increase. And we know we finally have a strong recruiting pipeline. We are unlikely to know more about any of these matters in January, when we will need to ask to increase our accounting support fee for our contingency reserve.

Nevertheless, I appreciate that the Board is acknowledging the need for more resources and has laid out a plan to make them available. Given our budget underspends in the past — including this year's substantial underspend because of our hiring problems — I can understand skepticism about our ability to hire what we need. Therefore, while I am a bit anxious about the effect our hiring challenges may have on our inspections, I will support the proposal.

Before I close, I also want to express my appreciation for our budget office, Bill Wiggins, Yoss Missaghian, and Lily Lin, as well as the oversight of our Chief Administrative Officer, Darrell Pauley, and Phoebe Brown. Phoebe's official title is Special Counsel to Dan Goelzer. But her contributions to the PCAOB, since inception, have gone far beyond Dan's office and benefit us all.

Thank you.