By Mark Maurer

Former audit regulators, academics and investors are making a push to fight the proposed elimination of the Public Company Accounting Oversight Board, which a Republican-led Congress could vote to approve as part of the broader tax bill now under consideration.

Congress created the PCAOB in 2002 to boost financial oversight in the wake of the Enron and WorldCom accounting scandals. But its fate now hangs in the balance as GOP lawmakers target a July 4 bill signing by President Trump.

Republican lawmakers want to fold the PCAOB's functions into the Securities and Exchange Commission, a once-fringe idea revived in a Project 2025 document last year. The House Financial Services Committee, led by Rep. French Hill (R., Ark.), voted along party lines to approve the measure last month, with a full House vote on the broader bill soon expected to follow. The provision to eliminate the PCAOB remained in the bill Wednesday morning, but Republicans were still considering final changes to the broader bill before a potential House vote later in the day.

Opponents warn that the plan would weaken oversight of auditing firms and reduce the accuracy and reliability of financial reporting, in part because they fear the SEC is unlikely to replicate the PCAOB's expertise and infrastructure with similar results due to its resource constraints and competing priorities.

PCAOB Chair Erica Williams, former members of the board and advisory groups in recent weeks have asked lawmakers to reconsider the plan. "The PCAOB has worked," six former board members said in a May 8 letter to the heads of the House financial services and budget committees. "We urge you not to jeopardize that progress."

Republican lawmakers and some former SEC officials say the proposal will make audit oversight more efficient and decrease duplication of regulatory functions, in line with the Trump administration's focus on government efficiency.

"As far as standard setting and everything else, to me, all that could be done in the SEC with a lot less process and certainly a lot less cost, " said Dan Gallagher, chief legal, compliance and corporate affairs officer at Robinhood Markets and a Republican former SEC commissioner.

Accounting firms, many of which have argued that the PCAOB went too far in certain rule-making efforts under Chair Erica Williams, say there is a need for strong audit oversight but have provided no official stance on the proposal. Groups representing the profession have said they are committed to collaborating with policymakers regardless of where audit oversight resides.

Approval of the measure isn't a foregone conclusion. One potential hurdle would be the Byrd Rule, which prohibits the Senate from including nonmonetary items in reconciliation bills like the one being considered.

If Congress doesn't pass the legislation, the PCAOB could still undergo major changes under new SEC Chair Paul Atkins, who frequently criticized the auditing watchdog as SEC commissioner in the 2000s. At a congressional hearing Tuesday, Atkins said the SEC is fully capable of taking on the PCAOB's duties but "obviously we would need the resources to do that."

The PCAOB has played a major role in the general absence of large-scale U.S. accounting failures since Enron and WorldCom, said Nemit Shroff, an accounting professor at the Massachusetts Institute of Technology and a member of a PCAOB advisory group.

"I do worry that we're going back in time with the wrong arguments in mind," Shroff said.

Key differences

If the SEC takes over the PCAOB, "the question is what are they going to do less," said Bill Gradison, a founding PCAOB board member and a former House member (R., Ohio) from 1975 to 1993.

The PCAOB is an independent nonprofit that sets standards for U.S. public companies' auditors, inspects audits and disciplines firms for violations as mandated by the Sarbanes-Oxley Act of 2002 that created it. The SEC must approve the PCAOB's rules and annual budget and can appeal inspection findings and enforcement actions. It also appoints the PCAOB's board members and can remove them at will.

A key difference between the two bodies is that the SEC doesn't perform audit inspections. The PCAOB's inspection division is its largest unit by far, at nearly 500 employees and about 45% of the budget.

Williams has said it would take years for the SEC to reassemble skilled inspections staff and renegotiate agreements with dozens of foreign governments required to perform the work.

Those agreements would include the PCAOB's landmark deal with China. The PCAOB in 2022 inspected China-based audits for the first time after years of Chinese regulators refusing to allow such reviews on national-security concerns.

"Not only will that agreement go away, our agreement with every jurisdiction abroad will go away because those don't transfer automatically," Williams said in an interview this month.

German regulators told Williams in a May 9 letter that they were "bewildered" to learn of the proposal, which they said would trigger a re-evaluation of their agreement with the U.S.

Not all of the PCAOB's leaders agree with Williams. PCAOB board member Christina Ho, who has been the lone dissenter on several rulemakings, said she doesn't believe investors would be any less protected under SEC-run audit oversight. "The message that the sky is falling is not credible," Ho said.

American Institute of Certified Public Accountants CEO Mark Koziel said he supports lawmakers and regulators' efforts to review how to improve the PCAOB, which he said presents an opportunity to determine whether inpsectors could employ more tech tools in their work.

"I know it will work either way, but it's not my decision," Koziel said, referring to the lawmakers' choice whether to roll up the PCAOB into the SEC. "There will still be inspections, enforcement actions and standards."

Former SEC Chair Richard Breeden, one of the first to publicly say that the SEC and not a separate body should regulate auditing before the PCAOB's creation, said his position largely remains the same more than 20 years later.

"A narrow silo agency tends to make rules that are less balanced and less appropriate for the entire marketplace than a larger agency with a broader mission of investor protection," Breeden said.

The PCAOB, whose budget is nearly $400 million this year, is funded by public companies and broker-dealers. Those funds will stop being collected if the measure becomes law, with anything left on hand to be transferred to the Treasury Department.

The Congressional Budget Office estimated that eliminating the fee authority would reduce direct spending by $3.2 billion from 2027 to 2034 because the PCAOB would no longer be spending the fees. Any costs for the SEC to absorb the PCAOB weren't included in the CBO estimate.

A new standard for standards

If the SEC officially absorbs PCAOB's regulatory functions but doesn't have the resources to incorporate its standard-setting duties, some have suggested that those duties could revert to the AICPA, which is a professional group that sets standards for private-company auditors but isn't a regulator.

The PCAOB at its inception was allowed to copy AICPA standards, officially on an interim basis, and still uses more than 30 of them. Those standards, criticized for being generally too industry-friendly, remain largely untouched from when the AICPA wrote them in the 1980s and '90s.

The AICPA is capable and would hire more people, Koziel said. "If we are chosen to be the ones to manage that, then we will find a way to do it very effectively," he said.

Regardless of how the PCAOB ultimately changes, the companies subject to audits hope to have a greater role in providing input on new auditing rules, said Evan Williams, vice president at the U.S. Chamber of Commerce Center for Capital Markets Competitiveness.

"Companies have been paying greater attention to auditing rule changes over the last four years and would welcome more of a seat at the table," the Chamber's Williams said.

Write to Mark Maurer at mark.maurer@wsj.com

(END) Dow Jones Newswires

May 21, 2025 13:12 ET (17:12 GMT)

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