The Securities and Exchange Commission approved a $258.4 million budget for the Public Company Accounting Oversight Board while also leaning on the board to make good use of the 5-percent increase to get better quality audits out of the auditing profession.

While lauding the PCAOB for its progress to date in regulating the auditing profession, members of the commission also tasked PCAOB Chairman James Doty to step up the pace on some long-awaited auditing standards and show progress is improving inspection results. “Success must be measured by significant and sustained reduction in the number of deficiencies identified through the inspection process,” said Commissioner Luis Aguilar during an open meeting to review and act on the budget.

Noting disturbing levels of audit failures reported through inspection findings, “These observations raise serious concerns regarding audit quality across the full spectrum of public accounting firms,” Aguilar said. “The pervasiveness of the audit failures identified by the PCAOB raises a real risk that investors will ultimately lose confidence in the benefits of the audit process.” He commended the PCAOB but called on the auditing profession to raise their commitment to protecting investors, reminding them that they have a duty to the public that transcends any client relationships. “Fulfillment of this responsibility is critical to the proper functioning of the capital markets and our economy,” he said.

The board also asked Doty for an update on where the board stands on mandatory rotation, an idea the board pursued but Congress cut down. “We don't have any active project work within the board to move forward on term limits for auditors or mandatory rotation,” said Doty. “It's not part of this budget.” The board has not given up, however, on figuring out how to get more independence out of the auditing profession, he said, which was the intended goal of a possible rotation system. “We will continue to think about what influences independence.”

SEC Chair Mary Jo White tasked Doty to explain when the PCAOB would show progress on some new standards around auditing fair value and around when it's appropriate for auditors to rely on the work of others. Those have been touchy issues between the auditing profession and inspectors, with auditors saying they're not clear on exactly what inspectors are demanding. Doty says the board will issue proposals on both standards by the end of the year, after focusing much effort in 2013 on broker-dealer standards and establishing a center for economic analysis that will be key to developing new standards going forward. “By the end of 2014 we will have don the necessary work to bring those to the board and the Commission,” he said.

Commissioner Michael Piwowar noted the SEC needs to be tough on the PCAOB's budget as it represents the only “statutory check” on the PCAOB's ability to raise accounting support fees at will. “Are companies getting what they're paying for?” he asked. The PCAOB's budget is approximately one-fifth the SEC's $1.35 billion budget, he said.

Under the PCAOB's 2014 budget, public companies will cover $225 million of the board's funding needs through the annual accounting support fee, while broker-dealers will pay a support fee of $27 million. The remainder will be covered by funds carried over from the prior year, interest income, and registration fees paid by accounting firms. The PCAOB projects a total head count of 864 by the end of 2014, with more than 600 of those positions allocated to inspections, registration, and enforcement staff.