Inspectors who have demanded auditors meet stringent documentation requirements are now struggling to meet their own documentation requirements imposed by the Securities and Exchange Commission.

The Public Company Accounting Oversight Board submitted its annual internal performance review to SEC Chairman Mary Schapiro with a significant focus on how the Division of Registration and Inspections is suffering some angst over documentation policies implemented in 2010. Inspection staff is starting to suffer some morale issues as a result of challenges in scheduling, timekeeping, and allocation of resources to meet the new documentation requirements, Acting Chairman Daniel Goelzer told Schapiro.

SEC staff told the PCAOB in 2009 that existing documentation didn't provide enough evidence of the inspection process to allow SEC staff to evaluate the effectiveness of the inspection program. The PCAOB came up with a new documentation plan to address the staff's concerns and put it into play for the 2010 inspection cycle.

The PCAOB's latest internal review revealed that the documentation requirements are being met, but not without severely stressing resources and mucking up the inspection division's model for how to schedule and assign inspection work. Goelzer notes the inspections staff implemented the new documentation requirements at the same time the board was retooling its approach to international inspections, exacerbating the problems.

Goelzer said the board and its staff is working on a solution and will hold a series of meetings over the next several months to further address it. The board has asked for a budget increase in 2011 in large part to increase staffing. The PCAOB is under Dodd-Frank orders to establish an inspection and enforcement regime for broker-dealer auditors, and it needs more resources to meet the inspections documentation requirements and handle an anticipated increase in enforcement activity, Goelzer said. The SEC must approve the PCAOB budget before it can become effective.