Good afternoon.  This is an open meeting of the U.S. Securities and Exchange Commission on February 5, 2014 under the Government in the Sunshine Act.

The Public Company Accounting Oversight Board was created under the Sarbanes-Oxley Act to oversee the audits of public companies in order to protect the interests of investors and further the public interest in the preparation of informative, accurate, and independent audit reports of companies.  The Sarbanes-Oxley Act requires the PCAOB’s annual budget and support fee to be approved annually by the Commission.  Today, the Commission will consider the PCAOB’s 2014 budget request for $258.4 million. 

In addition to its responsibility to oversee the audits and auditors of the financial statements of U.S. public companies, the PCAOB also has explicit authority to oversee the audits and auditors of the financial reports of SEC-registered broker-dealers. 

The PCAOB’s responsibilities to oversee these very important gatekeepers are critical to protect public investors and our financial system.  Inadequate funding of an agency always diminishes its ability to carry out its mandated responsibilities and we want the PCAOB to have the necessary funds to carry out its functions.  But it is also our responsibility to ask probing questions about the planned use of resources and the appropriate funding level and whether there is appropriate stewardship over the funds budgeted and funded by an accounting support fee charged to issuers and broker-dealers. 

In fulfilling its mission, the PCAOB evaluates current audit practices, primarily by conducting inspections of registered firms.  From its inception, the Board has inspected thousands of audits, both in the United States and abroad.  This global focus is important, and I am encouraged by the continued progress made by the Board to enter into new cooperative agreements with non-U.S. regulators to conduct foreign inspections. 

I am also encouraged by the Board’s efforts more generally to enhance the inspection program.  For example, last year the Board improved the timeliness of inspection reports and quality control remediation determinations.  These efforts, and the Board’s other initiatives related to its six near-term priorities, are important to the Board’s goal of advancing its inspection and other programs to improve audit quality.  I encourage PCAOB staff to continue working closely with SEC staff on achieving our investor protection objectives.

Also important for investor protection is the inspection of audits and auditors of broker-dealers.  This past year, as part of its interim inspection program for these audits, the Board issued its second public progress report.  The high rate of deficiencies identified by the PCAOB for the second year in a row makes clear that there is room for significant improvement in the quality of broker-dealer audits.  The findings also demonstrate the importance of the rules adopted by the Commission last year to increase protections for investors with assets being held by broker-dealers.  Among other things, these rules require the use of PCAOB standards beginning later this year.  I strongly encourage consideration of expanding the temporary program while the parameters of a permanent inspection program are determined and fully developed.

The Board should keep the Commission and staff apprised of developments in the implementation of its near-term priorities.  It is also important that the Commission and staff continue to be informed, through quarterly reports, about the PCAOB’s IT program and inspection program.  The reports should continue to provide detailed information about the state of the IT program, a discussion of the progress and implementation of the Board’s steps to improve the program, and the quarterly reports prepared by PCAOB staff for the Board.  For the inspection program, the reports should continue to include statistics about the firms budgeted and expected to be inspected in 2014, information about the timing of the issuance of inspections reports for domestic and non-U.S. inspections, and updates on the Board’s efforts to establish cooperative arrangements with non-U.S. authorities for inspections.

Lastly, I expect the PCAOB to continue to work with the Commission and Commission staff as appropriate regarding implementation of sequestration for the 2014 budget.

With us today is Jim Doty, Chairman of the PCAOB, and I would like to thank Chairman Doty for being here and for his service.  I would also like to thank the other PCAOB Board members, Steve Harris, Lew Ferguson, Jay Hanson, and Jeanette Franzel, for their service and all of the important work they do at the PCAOB and also for a number of them being here today.   I also want to thank the staff at the PCAOB for their dedicated efforts and the SEC staff who worked on the review of the PCAOB’s 2014 budget.

SEC staff include our Chief Accountant, Paul Beswick, and Brian Croteau, Jeff Minton, Amy Steele, Kevin Stout, and Mark Jacoby in the Office of the Chief Accountant, as well as Ken Johnson, our Chief Financial Officer, and Rick Taylor and Nicole Puccio from the Office of Financial Management.