House Financial Services Committee proposes to abolish the PCAOB

On May 1, 2025, the House of Representatives Financial Services Committee voted to advance draft legislation that would, among other changes to administrative agencies, abolish the Public Company Accounting Oversight Board (PCAOB) and move its operations and ambit to the Securities and Exchange Commission (SEC).

Background

The PCAOB is a nonprofit government corporation created by the 2002 Sarbanes-Oxley Act (SOX) that oversees the audits of public companies and SEC-registered brokers and dealers.  The PCAOB’s current role includes publishing Standards and Rules for accounting firms, conducting inspection reports of registered public accounting firms, and undertaking enforcement actions regarding its rules.

The SEC appoints each PCAOB board member and has the power to modify or overturn the PCAOB. Two members of the board are required to be Certified Public Accountants.

The House Financial Services Committee draft legislation

The draft legislation includes potential legislative enactments to be included in the 2025 budget plan currently being negotiated in Congress. One such proposal would abolish the PCAOB and transfer its functions to the SEC within a year of enactment. 

The bill provides that “existing processes and regulations of the [PCAOB], including existing [PCAOB] auditing standards, shall continue in effect unless modified through rule making by the [SEC].” That being said, the draft legislation would result in potentially dramatic changes in how those “processes and regulations” are carried out. While the draft legislation provides that employees at the PCAOB “may” be offered equivalent positions at the SEC, the draft legislation would cap any salaries beyond that of “similarly situated employees of the [SEC].” This salary cap could prove important because salaries at the PCAOB are not subject to government pay scales. Thus, under the draft legislation the SEC may have difficulties in retaining technocrats adroit in auditing standards to carry out the functions previously assigned to the PCAOB. 

Further, the draft legislation would fundamentally change fees charged under SOX, which compromise the largest source of funding for the PCAOB. Currently, certain issuers, investment companies and broker dealers of a requisite size must pay an "accounting support fee" in connection with audited financials by PCAOB-registered firms. Under the draft legislation, the SEC would be unable to collect these fees and the balance of remaining account support fees would be directed to the Treasury. Thus, the PCAOB's functions would cease to be independently funded.

Potential impacts of an abolished PCAOB

The draft legislation is far from enactment and it may not pass or may pass after substantial revision. Still, any company that uses accounting firms that are subject to the PCAOB should monitor this potential change as it could affect how audits are conducted in the future. There could be changes to the substantive policies underlying audits. Further, the elimination of independent funding under the “accounting support fee” as well as potential loss of personnel could impact how and how often enforcement against auditing firms is conducted.

Of course, both auditing firms and non-auditing entities should continue to follow PCAOB guidance and enforcement as no change has been enacted and auditing standards would survive under the new legislation.