Critics see chance to close down US audit regulator under Trump

Critics of the US audit regulator see an opportunity to defang and perhaps close down the agency after Donald Trump returns to the White House and installs officials committed to his deregulatory agenda.

US accounting firms are calling for a change of direction at the Public Company Accounting Oversight Board after four years of record fines and new rules that have irked the industry.

While the accounting board survived an attempt by the first Trump administration to dissolve it and hand its work to the Securities and Exchange Commission, which oversees the agency, the idea has resurfaced after complaints it has not given the profession a fair hearing under chair Erica Williams.

Accounting sector veterans and political observers say the threat to the accounting board is greater than at any point since it was created more than two decades ago in the wake of the Enron audit scandal.

“You may have an SEC chair who is actively hostile to the existence of the PCAOB, or you may not,” said Dan Goelzer, a PCAOB board member for 10 years from its inception in 2012, “but whoever Trump appoints is very likely to have a different perspective on the size of the PCAOB”.

The board under Williams has built up its inspections of accounting firms, finding more deficiencies in audit work and imposing heavier penalties for the worst failings. It has also tried to push through new rules imposing greater transparency on accounting firms and expanding the role of auditors without justifying the costs, critics contend. Some audit firms have complained inspectors are often focused on minor infractions.

Trump is yet to pick a nominee to run the SEC, but the regulator’s past two chairs have cleared out the leadership of the PCAOB in one of their first acts in the role, creating an expectation for what will happen next year.

“It is not great to go from polar opposite to polar opposite, so we are not terribly excited about it,” said one executive at a Big Four accounting firm, “but we do expect there to be a little more balance”.

Julie Bell Lindsay, chief executive of the Center for Audit Quality, which represents large accounting firms, argued for an urgent change of direction.

“The past several years at the PCAOB have demonstrated a concerning lack of data-driven analysis,” she said. “Operating transparently, engaging all its stakeholders, and grounding its actions in rigorous, evidence-based decision-making must be a priority for any effective regulator or standard-setter, including the PCAOB for the next four years.”

The board was set up under the bipartisan Sarbanes-Oxley Act and was kept at arms length from the SEC in the hope of insulating it from politics and making sure it could pay private sector salaries. Williams, a litigation lawyer appointed by SEC chair Gary Gensler in January 2022, is paid $673,000 a year, in contrast to Gensler’s own salary of $168,400.

Board members can be removed by the SEC chair without cause, however, and the regulator has yet to approve the board’s annual budget of close to $400mn. In recent years its spending has attracted criticism from Republican commissioners.

The first Trump administration proposed giving the agency’s work to the SEC to save roughly $64mn a year, but such a change requires action by Congress and the idea did not gain traction at the time.

Now Republicans are set to hold majorities in both houses of Congress and Bill Huizenga, who first introduced legislation to fold the board into the SEC in 2021, is one of the candidates vying for the chair of the House financial services committee. Ending the board’s independence was also proposed in the “Project 2025” blueprint for Congressional action written by the right-wing Heritage Foundation think-tank, saying it would “reduce costs and improve transparency, due process, congressional oversight, and responsiveness”.

“The bill is out there, it’s been written, it’s available,” said Lynn Turner, a former chief accountant at the SEC and an adviser to the PCAOB. Folding the agency into the regulator would mean “you’ll have to cut those salaries and the staff would be gone”, he said. “It would destroy the PCAOB and they know that. It’d be dead in 24 months.”

Huizenga said the agency should be focused on improving audit standards rather than “just looking for the next enforcement action”.

He told the Financial Times: “The PCAOB is just another example of wasteful government spending. Not only are many of its functions redundant, but under [SEC] chair Gensler, they have become hyper-politicised. I look forward to working with the incoming administration to address my concerns.”

Earlier this year, Williams said she had worked for Republicans and Democrats over her career, including 12 years as a lawyer at the SEC. “I don’t let politics get in the way of what I’m doing,” she told reporters at a conference. “I didn’t there and I’m not doing that here.”

The board said Williams was pursuing a strategy approved by its leadership that puts investors first.

Goelzer said the PCAOB had been a “great success” whose inspection regime had made “a big difference to investors who should be grateful for the improvement in audit quality”, and he rued how politicised its future had become.

The founding board members had considered where to locate the agency, he recalled. “Since we all lived in DC, we put it in DC, but it might have been much smarter if we had put it in Connecticut or somewhere away from the political process.”