WASHINGTON Feb 13 The top U.S. audit watchdog could face steep cuts to its budget if Congress does not come to an agreement to avert "sequestration," even though the organization is a nonprofit that does not receive congressional appropriations.
The issue of sequestration could come up on Wednesday when Jim Doty, the head of the Public Company Accounting Oversight Board, appears before the U.S. Securities and Exchange Commission to discuss his organization's 2013 budget needs.
The PCAOB was created by the 2002 Sarbanes-Oxley Act in response to a rash of accounting scandals at companies like Enron.
The watchdog for auditors of public companies and broker-dealers, it is tasked with conducting routine inspections, taking enforcement actions when needed, and setting auditing standards for the industry.
Although the PCAOB is listed in the federal budget each year, it is funded through fees from public companies and broker-dealers and does not receive any congressional appropriations. The SEC, however, must vote to approve its budget annually.
This year, the PCAOB is requesting approval from the SEC for a $245.6 million budget, an increase of about 8 percent from the 2012 budget of $227.7 million.
Sequestration is a measure that stems from the 2011 impasse between President Barack Obama and congressional Republicans over raising the nation's debt limit. Republicans had wanted to match any increases in the borrowing cap with spending cuts in an effort to reduce the deficit.
But Obama was concerned about cuts to social safety-net programs. In a last-minute deal, the two sides agreed to an increase in the debt ceiling in exchange for continued talks on deficit reduction.
As an incentive, Congress passed the sequestration bill, which sets up a deadline for automatic across-the-board spending cuts that will take effect unless a deal is struck.
Last year, the White House Office of Management and Budget released preliminary estimates of how sequestration would affect each government agency. Under the OMB's estimate, the SEC's $1.321 billion budget could be facing a cut of $108 million.
Also included in that document, however, are some organizations that do not receive congressional appropriations. The PCAOB is listed as facing a potential $18 million cut, while the Securities Investor Protection Corp is listed for a potential $23 million cut.
Congress created the SIPC to help customers of failed brokerages recover their money.