B-Ds face hiked fees for audit oversight

Large broker-dealers soon will have to pay higher fees to help finance the regulator that oversees audits of the firms.

On Wednesday, the Securities and Exchange Commission unanimously approved a $227.7 million budget for the Public Company Accounting Oversight Board, an 11% increase from 2011. The SEC also OK’d a 6% increase in PCAOB fees — to $215 million — to fund the enhanced operations.

Broker-dealers will be assessed $18.2 million of the fee hike, while the other $196.8 million will be paid by publicly held companies that the PCAOB monitors.

The PCAOB accounting-support fee is paid by broker-dealers with more than $5 million in net capital. Last year, that amounted to about 15% of the approximately 4,656 broker-dealers registered with the Financial Industry Regulatory Authority Inc.

In 2011, brokerage firm fees ranged from a low of $400 to a high of $1.1 million per firm, according to a statement by PCAOB board member Daniel Goelzer at a June 14 hearing. Obviously, those figures will be on the rise this year.

The PCAOB was established by the 2002 Sarbanes-Oxley Act in the wake of the accounting scandals that led to the collapse of Enron Corp. and WorldCom. The 2010 Dodd-Frank financial reform law expanded the board’s jurisdiction to include the inspection of broker-dealer audits.

Under its 2012 budget, the PCAOB will be able to add 30 new broker-dealer auditors to its staff. Another 60 auditors will be added for public company inspections. The PCAOB staff currently totals 689. The agency’s budget increase also will allow it to boost the number of international inspections it can conduct.

The accounting board will not make a decision for several months on how to allocate the $18.2 million fee increase among individual brokerages, according to a spokeswoman.

At the Wednesday meeting, SEC Chairman Mary Schapiro praised the PCAOB both for its audit inspection and enforcement activities.

“There is little question that the PCAOB has grown into an important regulatory body with a significant investor protection role,” Ms. Schapiro said.

She said that the advent of the PCAOB fundamentally changed auditing oversight.

“Investors were no longer left to rely on a ‘peer review’ system where one auditor reviewed the work of another,” Ms. Schapiro said. “Rather, inspections were to be conducted by professionals free from potential conflict, and the results of those inspections were to be made public.”