2018-27978. Order Approving Public Company Accounting Oversight Board Budget and Annual Accounting Support Fee for Calendar Year 2019

The Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”),^[1] established the Public Company Accounting Oversight Board (“PCAOB”) to oversee the audits of companies that are subject to the securities laws, and related matters, in order to protect the interests of investors and further the public interest in the preparation of informative, accurate, and independent audit reports. Section 982 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) ^[2] amended the Sarbanes-Oxley Act to provide the PCAOB with explicit authority to oversee auditors of broker-dealers registered with the Securities and Exchange Commission (the “Commission”). The PCAOB is to accomplish these goals through registration of public accounting firms and standard setting, inspection, and disciplinary programs. The PCAOB is subject to the comprehensive oversight of the Commission.

Section 109 of the Sarbanes-Oxley Act provides that the PCAOB shall establish a reasonable annual accounting support fee, as may be necessary or appropriate to establish and maintain the PCAOB. Under Section 109(f) of the Sarbanes-Oxley Act, the aggregate annual accounting support fee shall not exceed the PCAOB's aggregate “recoverable budget expenses,” which may include operating, capital, and accrued items. The PCAOB's annual budget and accounting support fee are subject to approval by the Commission. In addition, the PCAOB must allocate the annual accounting support fee among issuers and among brokers and dealers.

Section 109(b) of the Sarbanes-Oxley Act directs the PCAOB to establish a budget for each fiscal year in accordance with the PCAOB's internal procedures, subject to approval by the Commission. Rule 190 of Regulation P governs the Commission's review and approval of PCAOB budgets and annual accounting support fees.^[3] This budget rule provides, among other things, a timetable for the preparation and submission of the PCAOB budget and for Commission actions related to each budget, a description of the information that should be included in each budget submission, limits on the PCAOB's ability to incur expenses and obligations except as provided in the approved budget, procedures relating to supplemental budget requests, requirements for the PCAOB to furnish on a quarterly basis certain budget-related information, and a list of definitions that apply to the rule and to general discussions of PCAOB budget matters.

In accordance with the budget rule, in March 2018 the PCAOB provided the Commission with a narrative description of its program issues and outlook for the 2019 budget year. In response, the Commission provided the PCAOB with economic assumptions and general budgetary guidance for the 2019 budget year. The PCAOB subsequently delivered a preliminary budget and budget justification to the Commission. Staff from the Commission's Office of the Chief Accountant and Office of Financial Management dedicated a substantial amount of time to the review and analysis of the PCAOB's programs, projects, and budget estimates; reviewed the PCAOB's estimates of 2018 actual spending; and attended several meetings with management and staff of the PCAOB to further develop their understanding of the PCAOB's budget and operations. During the course of this review, Commission staff relied upon representations and supporting documentation from the PCAOB. Based on this review, the Commission issued a “passback” letter to the PCAOB on November 1, 2018. On November 15, 2018, the PCAOB adopted its 2019 budget and accounting support fee during an open meeting, and subsequently submitted that budget to the Commission for approval.

After considering the above, the Commission did not identify any proposed disbursements in the 2019 budget adopted by the PCAOB that are not properly recoverable through the annual accounting support fee, and the Commission believes that the aggregate proposed 2019 annual accounting support fee does not exceed the PCAOB's aggregate recoverable budget expenses for 2019.

The Commission also acknowledges the PCAOB's updated strategic plan, which involved extensive outreach, and encourages the PCAOB to continue keeping the Commission and its staff apprised of significant new developments during its implementation. In addition, the PCAOB should submit its 2018 annual report to the Commission by April 1, 2019.

The Commission directs the PCAOB during 2019 to schedule monthly meetings with the Commission's staff about the transformation initiatives that are expected to have a significant impact on the 2020 PCAOB budget. In addition, the Commission directs the Board during 2019 to continue providing quarterly updates to the Commission that describe (i) the activities and progress towards the stated goals of the PCAOB's Office of Economic and Risk Analysis (“ERA”); (ii) detailed information about the state of the PCAOB's information technology program as administered by the PCAOB's Office of Information Technology (“OIT); and (iii) information about the PCAOB's inspections program as administered by the PCAOB's Division of Registration and Inspections (“DRI”), consistent with the quarterly updates reflected in the Commission's Order approving the PCAOB's annual budget and accounting support fee for calendar year 2018 dated January 10, 2018. In addition, the quarterly updates should include updates on the transformation projects for ERA, OIT, and DRI.

The Commission understands that the Office of Management and Budget (“OMB”) has determined that the 2019 budget of the PCAOB is subject to sequestration under the Budget Control Act of 2011.^[4] For 2018, the PCAOB sequestered $17.2 million. That amount will become available in 2019. For 2019, the sequestration amount will be 6.2% or $17.0 million. Consequently, we expect the PCAOB will have approximately $0.2 million in excess funds available from the 2018 sequestration for spending in 2019. Accordingly, the PCAOB has reduced its accounting support fee for 2019 by approximately $0.2 million.

The Commission has determined that the PCAOB's 2019 budget and annual accounting support fee are consistent with Section 109 of the Sarbanes-Oxley Act. Accordingly,

It is ordered, pursuant to Section 109 of the Sarbanes-Oxley Act, that the PCAOB budget and annual accounting support fee for calendar year 2019 are approved.

By the Commission.

Brent J. Fields,

Secretary.

Footnotes

1.  15 U.S.C. 7201 et seq.

2.  Public Law 111-203, 124 Stat. 1376 (2010).

3.  17 CFR 202.190.

4.  See “OMB Report to the Congress on the Joint Committee Reductions for Fiscal Year 2019”, Appendix page 16 of 17 available at https://www.whitehouse.gov/​wp-content/​uploads/​2018/​02/​Sequestration_​Report_​February_​2018.pdf .