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Commission Approves PCAOB's 2008 Budget

Commissioner Paul Atkins cast an opposing vote on the PCAOB's 2008 budget because of the salary of its board members. Atkins thought the budget should have included a salary freeze rather than the 3.3% increase provided in the budget. With the chair's salary targeted to reach over $654,000 and the members' reaching $532,000, Atkins said they were disproportionately high, especially given that investors pay for those salaries. The Board's salaries are out of sync with others similarly situated, in Atkins' view, and he presented a slide show to emphasize his point. The Board receives higher pay than the President of the United States, the vice president, the Congressional leadership, and far exceeds the average pay for non-profit CEOs, he said.

The legislative history related to the establishment of the PCAOB emphasized the need to pay competitive salaries for the staff. Atkins said there has been no difficulty finding qualified Board members. He added that he did not doubt the excellent work of the Board, but believes their salaries represent a policy issue. The budget is otherwise reasonable, in his view, but he refused to support it because of the salary issue.

The PCAOB last month approved its 2008 budget of $144.6 million, which was then submitted to the SEC for approval. The SEC had until December 23 to approve the budget. The SEC has ordered the PCAOB to provide a more detailed strategic plan with respect to its operations and to provide regular updates on its technology program. The Board must develop a system to accommodate the planned annual and special reports to be filed by registered public accounting firms.

SEC Chairman Christopher Cox reported that the SEC and the PCAOB met every deadline for delivering the budget this year for the first time. The PCAOB contemplates that it will complete its growth to full size by 2011. Cox noted that the PCAOB's salaries have now been delinked from those of the FASB. He added that the Board's salaries have increased at rates lower than the rate of inflation.

PCAOB Chair Mark Olson defended the members' salaries. The Sarbanes-Oxley Act recognized that the Board could not achieve its mandate in such a short time frame without offering competitive salaries, he said. Olson also pointed out that the PCAOB and the SEC worked together on the salary issue during the Board's formation and reached a mutual agreement. The PCAOB did not determine the salaries on its own.

Cox asked about the impact of the PCAOB's international work on its resources. Olson said that 2008 will represent a quantum leap in its budget requirement for inspecting the international firms that are subject to triennial inspections. The PCAOB has waited for the European Commission to adopt its 8th Directive on Statutory Audit which puts in place an oversight regime for audit firms.

Atkins said the PCAOB's budget process was smoother this year and he believes it will work even better in future years as the staff comes to understand the information the SEC wants the staff to provide. The strategic plan is not yet fully integrated with the budget process, he added, which has been a real hindrance in his view.

Commissioner Kathleen Casey also raised concerns about the Board members' salaries. She said she does not believe that Congress intended the salaries to be tied to an index that includes significant annual increases. Casey warned that the Board's salaries will continue to be a high profile issue.

The commissioners approved the budget by a three to one vote.