SEC Staff Gears Up to Absorb PCAOB Duties if It’s Abolished
The Securities and Exchange Commission (SEC) is mapping out plans to take over the functions of the Public Company Accounting Oversight Board (PCAOB) should Congress eliminate the board through a budget reconciliation bill, Acting SEC Chief Accountant Ryan Wolfe said at a June 11 financial reporting conference.
The PCAOB is a nonprofit corporation established by the Sarbanes-Oxley Act of 2002. It was created in response to major corporate accounting scandals, such as those involving Enron and WorldCom, which undermined public confidence in the reliability of financial reporting and auditing.
The PCAOB’s primary mission is to oversee the audits of public companies, protecting investors and the public interest by promoting accurate, independent, and informative audit reports. It also has authority over audits of broker-dealers registered with the SEC. Its key functions include:
- Registering public accounting firms that prepare audit reports for public companies.
- Establishing auditing and related professional practice standards.
- Inspecting registered public accounting firms for compliance with laws and standards.
- Investigating and disciplining firms and associated individuals for violations.
This legislative move was included in a House Financial Services Committee budget proposal that narrowly passed in early May. It would dissolve the PCAOB, consolidate its responsibilities with the SEC, and terminate the audit board’s funding mechanism, which relies on accounting support fees. Similar language was added by the Senate Banking Committee on June 6, with opponents cautioning that the change may violate the Byrd Rule, which restricts reconciliation bills to provisions that strictly affect spending or revenue.
Wolfe emphasized that feedback from stakeholders has underscored the critical ecosystem roles played by the PCAOB, particularly its institution of auditing standards, its inspection of auditors, and its enforcement authority. He also noted that the SEC already shares jurisdiction in enforcing compliance.
Fiscal projections indicate that the PCAOB operates on a roughly $400 million annual budget, financed by fees on public companies and brokerage firms. In anticipation of the board’s potential shutdown, the SEC has requested a $100 million budget increase for fiscal year 2026 to facilitate the transition of oversight duties.
PCAOB Chair Erica Williams strongly warned against dismantling the independent board, stating that its staff and specialized functions are “essential and…irreplaceable” for driving audit quality. She highlighted the board’s global reach, pointing to its agreements enabling inspections of nearly 1,519 firms, including 844 outside the U.S., and emphasized the risk of disruptions to international audit oversight.
Critics argue that absorbing PCAOB’s responsibilities would put a substantial burden on the SEC, which would need to hire hundreds of new staff and renegotiate international inspection arrangements—a process that took years to establish. Supporters argue that consolidation could streamline regulation and reduce duplication, citing potential cost savings—an estimated $3.2 billion reduction in federal spending by 2034.
However, the plan faces significant opposition. Legal experts and former PCAOB members argue it could undermine audit oversight and investor protection, and key international partners may reassess cooperation. The matter remains under debate in both the House and Senate, and it is unclear whether it can pass muster under reconciliation rules.
For more information about SEC compliance or SEC regulations or to speak with a Securities Attorney, please contact Brenda Hamilton at 200 E Palmetto Rd, Suite 103, Boca Raton, Florida, (561) 416-8956, or by email at [email protected].
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