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State Board Report

October 2016

Public Company Accounting Oversight Committee Chair James R. Doty encouraged the U.S. House Subcommittee on Capital Markets and Government Sponsored Enterprises to support passage of S. 1084, the PCAOB Enforcement Transparency Act. Speaking at the Subcommittee’s September 22 hearing on “Examining the Agenda of Regulators, SROS, and Standards-Setters for Accounting, Auditing and Municipal Securities,” Chair Doty explained S. 1084 is aimed at addressing the problem raised by keeping the PCAOB’s disciplinary proceedings nonpublic: “The auditors and audit firms charged with violating applicable laws, rules or standards have little incentive to consent to opening the case against them to public view, and, in fact, none have ever done so. This state of affairs is not good for investors, for the auditing profession, or for the public at large.”

Altering documents provided to the PCAOB in connection with an inspection or investigation without informing the inspectors is one area that has drawn the enforcement division’s attention this year. Mr. Doty noted evidence of this behavior had been found among registered firms, including some affiliates of the large global networks. The PCAOB had issued a staff alert on the problem and pointed out that altering such documentation is inconsistent with an auditor’s professional duty. The PCAOB has also stepped up enforcement of compliance of its requirements by non-U.S. firms.

Mr. Doty praised the work being done by the PCAOB’s Center for Economic Analysis, which considers the economic impact of standards under development as well as the effect of those already implemented. Chair Doty said the Center’s research will make the PCAOB’s oversight programs more effective and efficient.

The PCAOB is funded primarily by public companies brokers and dealers, not taxpayers, Chairman Doty pointed out. Its budget for 2016 was $257.7 million and he anticipates the 2017 budget will include a small increase to include such expenses as cost of living and merit increases, travel (particularly for inspections), information technology (including cybersecurity) and facilities.

Chair Doty will address NASBA’s Annual Meeting on November 1 in Austin, TX.

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