The Public Company Accounting Oversight Board (PCAOB) on November 16, 2023, voted unanimously to approve its 2024 budget of $384.7 million, which is a significant increase of 11% over its revised 2023 spending plan of $347.3 million.
When the board estimated its 2023 budget in November 2022, it was $349.5 million.
The 2024 spending plan follows a substantial increase of 13% for 2023 over its 2022 budget of $310.3 million.
The increase comes as the board has been working on the most ambitious standard-setting and rulemaking agendas. Moreover, the audit regulatory board has stepped up on its enforcement and inspection activities amid increasing audit deficiency rates.
“Our strategic plan has been instrumental as the PCAOB has renewed and strengthened its focus on protecting investors,” PCAOB Chair Erica Williams in a statement. “With the approval of our 2024 budget, the PCAOB is poised to continue delivering results for investors and the US capital markets.”
Board Member Concern Over Increases
However, board member Christina Ho expressed concerns about year-to-year increases even though she voted to approve the budget. SEC Commissioner Hester Peirce is likely to vote against the budget as she already expressed her frustration about the board’s “ballooning budget” last year. The SEC, which oversees the board, must approve the PCAOB’s budget before it can become effective, and the five commissioners usually vote in December.
The PCAOB under Chair Williams’ leadership has increased its “output substantially,” but Ho said the board should not continue to seek year-over-year double digit percentage increases without a compelling need and significant effort to make the board’s operations much more efficient. She said that the proposed 2024 budget represents a 35 percent increase over 2020 budget, which was $284.7 million.
“Although we are not directly funded by taxpayer dollars here, we still have an obligation to investors to exercise strong fiscal stewardship,” Ho said. “To put it another way, we should not just seek to do more with more; rather, we should first seek to identify where inefficiencies exist and then do more with less, whenever possible.”
Personnel Costs
Personnel costs, which make up the largest component of the PCAOB’s budget, is $278.6 million, which is an increase of 11 percent from the 2023 revised spending plan of $250.2 million, said PCAOB Chief Operating Officer James McNamara.
“This budget properly provides our staff with competitive compensation that is both worthy of their hard work and necessary for the PCAOB to continue to retain and attract the top talent this work requires,” Williams said.
Personnel costs account for roughly three-quarter of the total budget. The proposed budget assumes funding for 946 employees by the end of 2024, which is 20 more than for the revised 2023 budget.
In Williams’ view, this is both modest and essential to advance the board’s oversight activities, adding that half of the new positions will be in the Division of Registration and Inspections “and will restore the total number of staff in this division back to an amount comparable to our 2016 and 2017 budgets, before the number of inspectors were reduced to a level below what our experts tell us is necessary to effectively protect investors today.”
No Pay Raise for Board Members
While the budget has been increasing, pay for board members will stay flat for the 15th consecutive year, the PCAOB confirmed. In 2024, 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 especially last year. The 2009 budget was $157.6 million.
Other Expenses
Consulting and professional fees, set at $37.4 million, account for 10% of the budget.
The budget provides $21.8 million for rents and other facilities costs including capital expenditures.
Travel expenses are set at $15.4 million, and inspections-related travels take up much of the spending.
Information technology will make up 4 percent of the budget at $14.1 million in 2024.
Administrative costs, which include office supplies, subscription and library, business insurance, and event costs are $10.2 million, making up 3 percent of the 2024 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.
The audit firm regulator estimated that the total accounting support fees will be $358.8 million, with $331 million on public companies and $27.8 million on broker-dealers.
This compares with total accounting support fees of $329.4 million, with $300.3 million on public companies and $29.1 million on broker-dealers in 2023 spending plan.
Sarbanes-Oxley established the PCAOB following accounting scandals at Enron and WorldCom two decades ago.
In explaining her support for the budget increase, Chair Williams pointed out that the board has taken more standard-setting and rulemaking actions this year than any year in the last 10 years by issuing four proposals. With one more expected this year, five proposals will represent the most in any single year in board history.
The PCAOB also adopted a standard in September on confirmations. This is pending SEC approval. The commission received three comment letters by the deadline of November 7, and the agency is likely to approve it in the coming weeks.
Among other achievements, Williams said that the board imposed the highest penalties last year in PCAOB history, and this week the board surpassed the record with $11.9 million with six more weeks to go in 2023.
Editor’s Note: The article originally stated that the SEC did not get any comment letters on the PCAOB’s confirmations standard by the deadline. The SEC did get them before deadline but posted them publicly two weeks later.
This article originally appeared in the November 17, 2023, edition of Accounting & Compliance Alert, available on Checkpoint.
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