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US Securities and Exchange Commission

SEC Approves PCAOB Supplemental Budget for Unexpected Outside Counsel Expenses

Soyoung Ho  Senior Editor, Accounting and Compliance Alert

Soyoung Ho  Senior Editor, Accounting and Compliance Alert

The SEC said that it has approved a supplemental budget for the Public Company Accounting Oversight Board (PCAOB) for expenses related to outside counsel in calendar year 2021.

“During 2021, the PCAOB determined that expenses related to the engagement of outside counsel would cause its Office of the General Counsel to spend amounts exceeding the previously approved program area budget for the year,” according to SEC Release No. 33-10983Order Approving The Public Company Accounting Oversight Board Supplemental Budget For Calendar Year 2021, published on September 17, 2021.

Thus, the PCAOB on July 14 submitted a request for supplemental budget.

While it was not immediately clear whether this had to do with a lawsuit for wrongful termination by a senior PCAOB officer and the SEC’s investigations into whistleblower complaints at the board, the audit regulator has reportedly hired outside counsel.

Whistleblowers claimed that then-PCAOB Chairman William Duhnke created “a sense of fear.” Duhnke has denied any wrongdoings and claimed that the senior officer, Sue Lee, was fired for cause.

Outside law firms reported are Sullivan & Cromwell LLP and Covington & Burling LLP.

The SEC and the PCAOB did not respond to requests for comment.

“The PCAOB’s 2021 supplemental budget requests Commission approval to transfer $3.4 million of FY 2021 funding from a certain program area in which all funds allocated are projected to not be spent in 2021 to the Office of the General Counsel to cover the projected excess costs related to the engagement of outside counsel,” the SEC said in the release.

The SEC oversees the board, and its annual budget does not become effective until the commission approves it. The PCAOB’s 2021 budget is $287.3 million.

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 accounting support fee for 2021 is estimated to be $263.9 million. Of the total amount, $236.2 million is assessed on public companies and $27.7 million on broker-dealers registered with the commission.

In Release No. 33-10983, the SEC said that the budget rule limits the PCAOB’s ability to incur expenses except as provided in the approved budget. The rule also describes the procedures for the submission of supplemental budgets when it is forecasted that the limits to incur expenses and obligations will be exceeded in a given year.

“The supplemental budget does not request an increase to the PCAOB’s previously approved 2021 budget of $287.3 million,” the SEC said. “The Commission directs the PCAOB to keep the Commission, through staff in its Office of the Chief Accountant, apprised each month of monthly legal expenses incurred and paid through the end of its fiscal year 2021.”

“Separately, the Commission directs that the PCAOB implement policies and procedures to ensure additional funds will not be required for spending on outside counsel for the 2021 fiscal year beyond those approved in this Order,” the SEC said. “The Commission also directs the PCAOB to inform the Commission of all of the steps it will take to reduce its current and future reliance on outside counsel.”

 

This article originally appeared in the September 30, 2021 edition of Accounting & Compliance Alert, available on Checkpoint.

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