Guidance On PCAOB Fees; Help Wanted; More

The Public Company Accounting Oversight Board has updated its series of frequently asked questions about how the agency raises money for operations, following the approval of its $130.9 million budget by the Securities and Exchange Commission for the current year.

The PCAOB’s budget process is a rare bird among federal regulators. Most regulatory bodies submit a budget request and are allocated federal funds, but the accounting regulatory body determines how much money it needs and calculates the “accounting support fee” it will charge to public issuers to cover the majority of its costs. The accounting support fee is a Sarbanes-Oxley-established equation based on a company’s market capitalization. The Board also collects registration fees from registered accounting firms, but that is a much smaller component of the regulator’s budget.

For 2006, the PCAOB plans to spend $130.9 million to oversee and inspect some 1,600 registered audit firms. The accounting support fee that will be charged to public companies will amount to $109.3 million. (By comparison, for fiscal 2005 the Board budgeted $137.1 million and set an accounting support fee of $136.1 million.)

When PCAOB submitted its 2005 budget, the SEC sent it back for revisions before ultimately approving a package reduced by $15.2 million. The SEC’s recent order approving the PCAOB’s 2006 budget says staff from the two regulators began conferring last August about the 2006 budget, “to address any issues relating to the PCAOB’s proposed budget for 2006 before it was approved by the PCAOB and submitted to the Commission for review and approval.”

The PCAOB said it was asking for less money in 2006, relying on surplus capital reserves to make up the difference. “Essentially, we're leveling off after big investments in IT and still lagging in hiring,” spokesman Christi Harlan says. Ultimately, the Board expects to grow to a total headcount of up to 537 employees by year-end 2006, including as many as 280 inspectors.

The Q&A on the accounting support fee focuses on how the PCAOB calculates the fee assessed to public companies and other issuers listed on U.S. exchanges. It describes the basic approach to calculating the fee and various circumstances that might complicate the basic approach, like a merger or acquisition midway through a fiscal year, a delisting or other events.

The document reveals nothing new about how the fees are assessed, said Tom Selling, an adviser to the Association of Audit Committee Members and a course producer for the Executive Enterprise Institute. “This is about 30 variations of the question ‘Do I really have to pay?’” he explains. “And the answer is ‘yes.'"

Related documents can be found in the box above, right.

Additional Advisory Group Members Sought For PCAOB SAG

The PCAOB is looking for 14 advisers who want to join its Standing Advisory Group for two-year terms beginning in January.

The board relies on its SAG—a cross-sectional group intended to represent accounting auditing, corporate finance, governance and investors—to help steer standard-setting for auditing and professional practice of auditors. The group meets three times a year and by phone as necessary.

The deadline for nomination, including self-nominations or re-nominations of existing members who would like to serve another term, is June 16.

See the form at right for details and instructions.

Report: FTSE 100’s Pension Assumptions May Mask Liabilities

In a recent analysis of pension fund disclosures for 28 companies in the British FTSE 100 stock index, Mercer Consulting found what it deemed shorter-than-justified life expectancy assumptions, reducing the overall pension liability.

Mercer says the survival assumption for white-collar workers for purposes of calculating pension liabilities should be 22 years, but the 28 companies analyzed were disclosing assumptions ranging from 18 to 22 years, with one company assuming only 16 years survival for its retirees. The shorter life expectancy assumptions results in “significantly lower valuations” of a pension fund’s liabilities, Mercer said.

“Given the social and geographic differences in memberships, one would expect pension schemes to use a range of mortality assumptions,” Tim Keogh, a partner at Mercer, said in a statement. “But those schemes that use particularly low assumptions may come under increasing pressure to justify their positions.”

Keogh said shorter life expectancies may be justified for certain groups of workers or certain geographic areas, but analysts can’t draw valid conclusions about the specific assumptions in the analyzed group without further study.

The report can be found in the box at right.