To regulate the auditing profession through market turmoil and a call for new auditing standards, the Public Company Accounting Oversight Board is looking for a 9-percent increase in its operating budget.

The PCAOB is sending to the Securities and Exchange Commission a budget that would seek $157.6 million in funding for 2009 compared with $144.6 million for 2008. The SEC must approve the budget, which is funded by an accounting support fee paid by public companies. The board is bracing itself for a tough inspection cycle beginning in the spring of 2009, when inspectors dig into audits of financial statements prepared under unprecedented market turmoil.

“Among the many complexities auditors are likely to be faced with are pension valuations, fair value measurements, accounting estimates, adequacy of disclosures, and consideration of a company’s ability to continue as a going concern—to list just a few,” said the PCAOB’s newest member Steve Harris during the board’s public meeting to approve the budget. “All these issues and more present increased financial reporting and, in turn, audit risks, and this year’s budget appropriately contemplates our need to respond to these risks.”

Harris said market tensions give the PCAOB good reason to watch for things like an increase in pressure on auditors to stretch accounting and auditing principles into fraudulent reporting. Inspectors also need to look closely at auditor independence, audit firms’ compensation plans, risks associated with all audit work, and audit supervision, he said.

PCAOB member Dan Goelzer said the board wants to hire 46 new people by the end of 2009, to end the year with a headcount of 531, to beef up core operational areas. These include inspections, enforcement, and the chief auditor’s staff, which is tasked with researching and writing auditing standards.

Chairman Mark Olson said the board not only needs to brace itself for inspections and enforcement following what is certain to be a difficult financial reporting and auditing cycle, but it also needs to take on the 16 recommendations handed down by the U.S. Treasury Office’s Advisory Committee on the Auditing Profession. That includes consideration of establishing a national fraud center, developing key audit quality indicators, requiring annual reports from audit firms, and looking at possible new standards on the form and content of the audit report, among others.

Olson said the board plans to tow the line on other expenses, especially support for office and technology costs, to make way for core operational funding increases. The board plans to update its strategic plan in early 2009 to reflect recent developments and its planned response, Olson said.

Last year’s budget process produced some tension between the PCAOB and the SEC, with the SEC handing back the board’s initial package for a trim. Former board member Kayla Gillan blasted the SEC for its response, which she said failed to acknowledge the front-end effort to provide a thoughtful budget at the outset.

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