Dissolving the Public Company Accounting Oversight Board (PCAOB)—the audit industry regulator established under the Sarbanes-Oxley Act of 2002—would require legislation passed by Congress. However, the incoming presidential administration does not need to "destroy it to render it ineffective," said Robert Pawlewicz, an assistant professor of accounting at the Robins School of Business at the University of Richmond in Virginia. "You just need to shut it down."

Pawlewicz noted in an interview that this is likely exactly what President-elect Donald Trump's second term will do, in a manner that may echo the PCAOB's operations during Trump's first term—the agency is overseen by the U.S. Securities and Exchange Commission (SEC).

During Trump's first term,William Duhnke was appointed in 2017—a longtime aide to Alabama Senator Richard Shelby—as PCAOB chairman, marking a significant decline in enforcement efforts and a softening of relations between auditors and the audit regulator. Pawlewicz expects that during Trump's second term, the PCAOB's history may repeat itself.

"You would see a significant drop in inspections, a significant reduction in enforcement actions, and standard-setting (such as new rules) nearly grinding to a halt," he said of the PCAOB under Duhnke. "So I expect the situation to be broadly similar to that time."

The Board: A Third Overhaul

The PCAOB's history as a regulator has been more turbulent than originally anticipated when the agency was first established.

"I think people who followed the PCAOB in its first 12 to 15 years expected it to be forgotten in a corner," Pawlewicz said.

However, that has not been the case. The regulator oversees auditors, including the Big Four accounting firms—Ernst & Young, Deloitte, KPMG, and PricewaterhouseCoopers. Its composition and responsibilities have swung between different presidential administrations, with both Democrats and Republicans accusing the regulator of failing to fulfill its duties at various points in its history.

For example, Duhnke, the PCAOB leader during Trump's first term, was appointed amid a comprehensive overhaul of the PCAOB board, aimed at making significant changes to its operations. Prior to that,an exam cheating scandalwas exposed, as reported by The Wall Street Journal in 2021, alleging that former PCAOB officials conspired with KPMG auditors to gain "sneak peeks" at regulatory inspections.

However, reports of organizational dysfunction and weak enforcementunder Duhnke's leadership, according to The Wall Street Journal, led SEC Chairman Gary Gensler to fire Duhnke in 2021 and overhaul the board again. Gensler stated that he removed Duhnke because the PCAOB failed to fulfill its mission of "auditing the auditors."

Under the leadership of Erica Williams, Gensler's nominee for PCAOB chair, the newly constituted board began implementingaggressive enforcement policies, includingissuing its largest fine in history—a $25 million penalty against KPMG Netherlands.

With Trump nominating Paul Atkins to lead the SEC, Pawlewicz said the regulatory pendulum may swing in the other direction again.

"I think if Chairman Atkins is sworn in, he could conduct a comprehensive purge of the PCAOB board," Pawlewicz said.

Just One Person Needed

Republicans have criticized the strict enforcement policies Gensler pursued during his tenure as SEC chairman, particularly attacking a rule requiring companies to disclose the impact of climate change on their financial statements, as CFO Dive previously reported.

Atkins, an advocate for the cryptocurrency industry, is widely expected toadopt a more friendly regulatory approach than his predecessor Gensler—who announced last month he would step down—which could bring significant changes to the PCAOB's internal operations. Atkins, a former SEC commissioner, has previously publicly criticized the audit regulator, according to The Wall Street Journal, attacking rules that allegedly hindered audit firms from making professional judgments, as well as the agency's budget and board member compensation.

As a potential new SEC chairman, Atkins's apparent dissatisfaction with the PCAOB has raised questions among some about whether the new administration might attempt to abolish the regulator. But Pawlewicz noted that while there are indeed voices supporting abolition, the PCAOB's ultimate goal is to protect investors—and efforts to eliminate the agency could face resistance.

"I expect large institutional investors, banks, and hedge funds might say, 'Wow... maybe they were a bit aggressive, we can rein them in a little,'" he said. "But we've also seen that when auditors lose oversight, they do go off the rails. So there's tension here."

However, it must be remembered that "the accounting standards that exist today are not carved in stone," he said, a key point he emphasizes to all his students in his accounting courses.

"It only takes one accounting scandal for regulation to bounce back strongly," Pawlewicz said. If a major accounting fraud scandal involving a large, well-known company erupts in the coming years, "and that accounting firm is implicated, then everything will spiral out of control," he said.