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PCAOB’s 2018 Budget Cuts Are Approved

The SEC approved the PCAOB’s 2018 budget of $259.9 million, which is an $8.6 million reduction from the 2017 total of $268.5 million. The PCAOB presented its reduced spending plan for 2018 after the SEC urged it to look for areas where costs can be cut and efficiency improved.

The SEC on January 10, 2018, approved a reduced PCAOB budget in Release No. 33-10453, Order Approving Public Company Accounting Oversight Board Budget and Annual Accounting Support Fee for Calendar Year 2018.

In November 2017, the PCAOB unanimously voted to approve its 2018 budget of $259.9 million, which is $8.6 million less than the 2017 total of $268.5 million. (See 2018 Budget Cuts Spending by 3.2 Percent to $259.9 Million in the November 17, 2017 edition of Accounting & Compliance Alert).

The SEC has to approve all important matters from the PCAOB, and the 3.2 percent decrease comes after some criticized the board’s spending increases in previous years.

“The Commission did not identify any proposed disbursements in the 2018 budget adopted by the PCAOB that are not properly recoverable through the annual accounting support fee, and the Commission believes that the aggregate proposed 2018 annual accounting support fee does not exceed the PCAOB’s aggregate recoverable budget expenses for 2018,” the SEC said in Release No. 33-10453.

The accounting support fee established by Section 109 of the Sarbanes-Oxley Act of 2002 authorizes the board to use the funds it collects to supervise and inspect over 1,900 accounting firms registered with it, including almost 900 located overseas and over 450 that audit broker-dealers.

The total accounting support fee for 2018 was set at $235.3 million, which is $32.6 million less than the support fee in 2017. The PCAOB’s assessment for 2018 on public companies is approximately $205.4 million and $29.9 million on broker-dealers.

The pressure on the board to cut back on spending had intensified because its core activities of inspecting audit firms, enforcing rules, and setting audit standards have largely remained at the same level. In December 2016, SEC Commissioner Michael Piwowar voted against the board’s budget for the second year in a row. The 2017 budget was a 4.2 percent increase from the 2016 spending total, and Piwowar believed there was no justification for the growth. While then-SEC Chair Mary Jo White supported the budget, she also said the board should look for savings and efficiencies.

In response, the PCAOB has been taking a number of steps to cut spending and promote efficiency, including a reduction in recruitment and relocation costs and reduced variable pay for staffers. Among the cuts planned for 2018 include the Division of Registration and Inspections, which proposed a reduction of 5.1 percent, the Division of Enforcement, which proposed a 6.5 percent cut, the Office of the Auditor, which plans to reduce spending by 3.8 percent, and the Office of Economic and Risk Analysis, which has targeted a cut of 5.2 percent.

The SEC in Release No. 33-10453 directed the PCAOB to continue to provide updates about estimated cost savings and efficiencies.

“The Board shall continue its review of its compensation and travel policies and report to the Commission the results of this review,” the SEC added.

In the meantime, the Office of Management and Budget (OMB) has determined the PCAOB’s 2018 budget to be sequestrable under the Budget control Act of 2011. For 2017, the PCAOB sequestered $17 million, which becomes available for this year. The sequestration amount for 2018 will be 6.6 percent or $17.2 million, the SEC said. “Accordingly, the PCAOB should submit a revised spending plan for 2018 reflecting a $0.2 million reduction to budgeted expenditures as a result of the increase in sequestration amount from 2017 to 2018.”

The SEC in the past several years held a public meeting to review the PCAOB’s activities and budget before approving its spending plan. But the SEC this time around has used the seriatim process to take action without convening a meeting most likely because the commission in December appointed five new PCAOB members who did not work on the board’s 2018 budget.