The Public Company Accounting Oversight Board, a private corporation established by the Sarbanes-Oxley Act of 2002, handles auditing for public companies and securities brokers, reporting a 10% increase in funding in 2024 compared to the previous year–an approximately $385 million budget. According to the summary they posted in November, the PCAOB has observed an aggregate funding growth of nearly 400% in just over 20 years, far ahead of the rate of inflation, wage growth, and even the overall federal spending which has been criticized as reckless.
(PCAON 2024 Budget details )
The vast majority of PCAOB’s operations are funded through annual assessments on publicly traded corporations — taxes that require no yearly approval or supervision from Congress. Curiously, the Securities and Exchange Commission is the only feasible scrutiny on PCAOB’s taxing and expenditure, as its commissioners vet the tax rates and yearly budget. However, with the SEC leaders being largely unelected regulators, and PCAON’s funding not affecting the SEC’s own budget, there’s little incentive to intervene meaningfully.
Despite the PCAOB’s significant funding, it recently admitted to audit quality worsening in the past two decades. The PCAOB was created with the goal of strengthening investor protection by means of enhanced audit quality. However, a series of recent reports have indicated denial of this claim. Around 40% of the audits they inspected in 2022 had noteworthy deficiencies, rising from 34% in 2021 and 29% in 2020. Despite the described trends being of major concern, no semblance of regulatory failure or overreach was acknowledged.
( PCAOB 2022 Audit Deficiency Report )
Moreover, PCAOB’s spending increase inversely correlates with audit quality. This discrepancy occurred simultaneously with a fervent surge in enforcement activities and charges against accountants suspected of audit errors. However, these fines do little to address the national debt as Sarbanes-Oxley directs PCAOB fines to be allocated as scholarships to university and postgraduate students pursuing accounting degrees.
( PCAOB Scholar’s Program )
A thorough examination of the PCAOB by the SEC before furthering funds has been urged. Crucially, any funding increase should contribute to a tangible enhancement in audit quality, underlined with transparency and accountable use of funds.
More details can be found in the original article published by Bloomberg Law.
( Bloomberg Law )