The Public Company Accounting Oversight Board (PCAOB) on November 21, 2024, voted 4-1 to approve its 2025 budget of $399.7 million, an increase of 3.9% over the 2024 budget of $384.7 million.
Board member Christina Ho voted against the increase, saying it is neither necessary nor justified. She noted that the PCAOB budget of the current board “has ballooned” by 40% from the 2020 budget of $284.7 million.
However, PCAOB Chair Erica Williams and three other board members believe the 2025 budget is justified and represents the resources needed to pursue four main goals established in the 2022-2026 strategic plan: modernizing auditing standards; enhancing audit inspections; strengthening enforcement; and improving organizational effectiveness.
“Since the plan was approved by the board two years ago, we have made significant advancements in protecting investors through our oversight activities,” Williams said during the meeting. “The 2025 budget will enable the organization to build upon this success through the dedicated efforts of the PCAOB’s talented staff.”
Ever since Williams became chair in January 2022, the PCAOB has quickly worked to modernize many interim standards adopted from the AICPA when the board was set up over two decades ago. The audit watchdog has set records in terms of enforcement actions.
The inspections staff have also made improvements to firm inspection reports to provide more insight to investors, including a new part of the report that describes any independence findings. Moreover, the PCAOB is publishing reports much more quickly than before.
By the end of 2024, inspections staff will have inspected 232 audit firms and 930 audits in the U.S. and abroad combined, Williams said.
2025 Budget in Detail
As has always been the case, the largest category of the 2025 budget is personnel. It will be $300 million, accounting for 75% of the total spending plan. This category includes compensation, salary, benefits, payroll taxes, and recruiting, according to PCAOB Chief Operating Officer James McNamara.
Personnel costs for 2024 is $285.8 million, which is about 4% less than the allocation for 2025.
The $300 million assumes that 945 positions will be filled by the end of 2025, which is one fewer position of 946 for the 2024 budget, he said.
Pay for Board Members Remains Flat
While the budget has been increasing over the years, pay for board members will stay flat for the 16th consecutive year, the PCAOB confirmed in response to Thomson Reuters’ query.
In 2025, the chair will again earn almost $673,000, and other members will be paid almost $547,000. The figures have been constant since 2009 despite high inflations in the last couple of years. The 2009 budget was $157.6 million.
The next biggest category is consulting and professional fees at $34 million, accounting for 9% of the total budget.
Rent and other facilities costs make up $19.8 million, representing 5% of the budget.
Information technology costs will be $18.3 million in 2025.
Travel related costs are expected to be $16.5 million, accounting for 4% of the budget. Travel for inspections accounts for 90% of travel costs.
The last category of expenses is administrative, which includes subscriptions, library, business insurance, and event costs, and it will be $11.2 million, according to COO McNamara. This represents 3% of the total budget.
Accounting Support Fees
Section 109 of the Sarbanes-Oxley Act of 2002 authorizes the PCAOB to collect accounting support fees from public companies and broker-dealers to fund its operations and supervise public accounting firms. Such fees in 2025 will be $375.9 million, an increase of 4.5% from $358.8 million in 2024.
The portion allocated for issuers is $346.1 million, and it is $28.8 million for broker-dealers.
Sarbanes-Oxley established the PCAOB following accounting scandals at Enron and WorldCom two decades ago.
“We continue to perform a thorough analysis of our staffing needs and believe these resources are essential to execute our strategic plan in support of our investor protection mission,” McNamara said.
SEC Approval Pending
As part of its oversight activities, the Securities and Exchange Commission (SEC) must approve the PCAOB budget.
Normally, the SEC holds an open meeting to consider the board’s budget. During the meeting, commissioners often ask other questions related to the board’s activities, including its standard-setting agendas.
It is likely that the two Republican-appointed commissioners—Hester Peirce and Mark Uyeda—will object to the board’s budget.
Last year, for example, both commissioners voted against the PCAOB’s 2024 budget, which was roughly a 10% increase from prior year’s.
This article originally appeared in the November 27, 2024, edition of Accounting & Compliance Alert, available on Checkpoint.
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