* White House OMB estimates PCAOB could face $18 mln cut
* PCAOB chair says sequestration should not apply
* PCAOB budget comes from fees; is not set by Congress
* Chair says considering seeking legal review from DOJ
By Sarah N. Lynch
WASHINGTON, Feb 13 The top U.S. audit watchdog
said the federal government is "simply wrong" in its decision to
include the nonprofit corporation on a list of agencies facing
steep automatic budget cuts if Congress fails to act.
"We are not a part of the federal government," Public
Company Accounting Oversight Board Chairman James Doty told
reporters on Wednesday.
The government's position "is simply wrong and flies in the
face of clear statutory language," he said on the sidelines of
an appearance before the U.S. Securities and Exchange Commission
to discuss the PCAOB's 2013 budget needs.
Doty said it might be a good idea if the PCAOB sought a
legal review of the matter from the Justice Department's Office
of Legal Counsel, though nothing has been decided.
He added that the PCAOB in the interim will come up with a
contingency plan. The plan, however, would not include furloughs
or cuts to staff, which he called the organization's "life
The PCAOB is funded through fees from public companies and
broker-dealers. But it is listed in the federal budget each
year, and the SEC must vote to approve its budget annually.
This year, the SEC approved a $245.6 million budget for the
PCAOB, an increase of about 8 percent from the 2012 budget of
In preliminary estimates last year of how sequestration
would affect each government agency, the Office of Management
and Budget said the SEC's $1.321 billion budget could be facing
a cut of $108 million.
Also included in that document 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 (SIPC), which is also funded through
industry fees, is listed for a potential $23 million cut.
An official at the OMB said on Wednesday that the
sequestration law reduces budget resources in all accounts
unless they are exempted. The PCAOB and SIPC's'accounts were not
granted an exemption, and the PCAOB and SIPC have funds
available through federal laws that let them collect and spend
the money. As such, their accounts can be sequestered, the
The budget increase approved by the SEC for the PCAOB's 2013
needs is nearly the same amount on the sequestration chopping
Elisse Walter, the SEC's chairman, said her agency is aware
of the potential impacts to the PCAOB and is prepared to work
with the organization if the looming March 1 cuts go into
The PCAOB was created by the 2002 Sarbanes-Oxley Act in
response to accounting scandals at companies including Enron. It
regulates auditors of public companies and broker-dealers,
conducting routine inspections, taking enforcement actions when
needed, and setting auditing standards for the industry.
It is still in the early stages of carrying out inspections
of broker-dealer auditors, a new authority it won in the 2010
Dodd-Frank Wall Street reform law.
It is also involved in talks with Chinese regulators over a
failure by Chinese audit firms to turn over work papers to the
PCAOB and the SEC.
QUIRK IN SEQUESTRATION LAW
The sequestration law was passed in response to an impasse
over raising the nation's borrowing limit as Democrats and
Republicans wrangled over how to address the nation's budget
deficit. The law set a deadline for across-the-board spending
cuts unless a deal on the budget is reached.
Stephen Harbeck, SIPC's president and chief executive,
called the sequestration legislation a "square peg in a round
hole" type of problem.
SIPC, which was created by Congress to help customers of
failed brokerages recover their money, is funded by industry
fees. Though it has a $2.5 billion line of credit available from
the federal government, it has never tapped it.
"The clear intent is to capture government monies, and make
sure they don't get used by the government. We don't do that,"
Harbeck told Reuters in an interview on Tuesday.
"Nevertheless, under some readings of the sequestration
legislation, it seems that if you were set up by the government,
you have to do something about this."
He said the SIPC is having discussions about the matter
internally. "I am sure that ... if this becomes necessary to
deal with, rational minds will prevail and we'll find a way to
continue our operations," Harbeck added.