The accounting support fees imposed on corporations by the Public Company Accounting Oversight Board will be slashed by nearly 20 percent next year, under the organization's recently released 2006 operating budget.In announcing the new budget plan for the coming year, PCAOB officials said that the board will charge publicly traded companies a total of $109.3 million in accounting support fees during 2006 - down from the $136.1 million assessed in 2005.

The fees imposed during 2005 generated more income than the PCAOB needed to conduct inspections of accounting firms during the past year, and the board decided to use the resulting excess working capital reserve to lower accounting support fees in 2006.

The oversight body's total budget for next year - $128.4 million (net of interest) - is a notch lower than the board's $136 million budget for 2005, and well below the PCAOB's original plan to spend $153 million performing its Sarbanes-Oxley Act duties over the course of 2005.

Behind the PCAOB's steadily shrinking operating budget: continuing difficulties in recruiting the qualified accountants and other professionals needed to inspect and oversee the 1,586 public accounting firms that have registered with the board.

As recently as October 2004, PCAOB officials expected to have 450 employees in place throughout the country by the end of 2005, but the board has fallen short of recruiting goals during each of the past two years. During last month's budget meeting, officials projected that the PCAOB's total headcount at the end of 2005 would reach 427.

McDonough's last words

Recruiting inspectors and support personnel for the PCAOB's inspection staff is a particular concern for officials at the board. Citing the need for "highly qualified" accountants to conduct the board's inspections of audit firms, PCAOB Chairman William McDonough said that "it is through an inspection that we can drive the greatest improvements in audit quality."

McDonough stepped down as PCAOB chair on Nov. 30. At press time, a successor had not been named.

But while McDonough said that audit firm inspections by the PCAOB have already caused "a profound shift in public company accounting," it's clear from the budget figures that the board would like to have more inspectors on the team.

By the end of 2005, the PCAOB hopes to have a national inspection staff totaling 200 - 10 percent below the target set by the board in October 2004. While the organization is planning to increase that inspection staff to a total of 280 by the end of 2006, top officials at the board anticipate further challenges in recruiting efforts.

In commenting on those challenges, as well as on the board's "fairly lean budget" for 2006, McDonough warned that it is "likely that the employment market will continue to be extremely competitive for employers" during the coming year.

The board also approved technical amendments to its ethics and independence rules regarding tax services, though those do not change the substance of the rules.

Separately, the board revoked the registrations of two auditing firms, citing their failure to adhere to public company audit standards.

The PCAOB cited Clyde Bailey PC, a Texas-based firm, and Kenny H. Lee CPA Group Inc., in California. The two firms will no longer be able to audit public companies. Meanwhile, firm principals Clyde Bailey and Kwang Ho Lee will be prohibited from working for public-company audit firms.

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