Core Summary

  • The U.S. House Financial Services Committee advanced Republican-backed legislation that wouldabolish the independent regulator that audits public company accounting firmsand transfer its duties to the U.S. Securities and Exchange Commission (SEC).
  • The legislation, if signed into law, would end the fees currently levied on companies and broker-dealers that fund the Public Company Accounting Oversight Board (PCAOB).The rules and processes currently overseen by the boardwould be transferred to the SEC, which would carry out oversight work using taxpayer funds.
  • The committee's Republican majority sought to cut PCAOB funding as part of broader efforts across multiple committees to pass legislation funding the federal government. The panel approved the legislation on a 30-22 party-line vote on Wednesday, and the bill would also cut the budget of the Consumer Financial Protection Bureau (CFPB).

In-Depth Analysis

In 2002, following multibillion-dollar accounting scandals at Enron and WorldCom, Congress established the independently funded PCAOB with broad bipartisan support.

Ahead of the vote that evening, Democrats on the Financial Services Committeecondemned the effort to eliminate the PCAOB, citing Republicans who had supported creating the board, such as former Rep. Michael Oxley of Ohio, who chaired the committee from 2001 to 2007.

Democrats on the committee also cited recent comments from other prominent Republicans supporting the PCAOB, including Jay Clayton, who served as SEC chairman from 2017 to 2020.

"The PCAOB's work serves the public interest, including protecting investors, by overseeing the preparation of independent audit reports,"Clayton said in a 2017 statementpraising a new board rule strengthening audit standards.

Rep. Maxine Waters, a California Democrat, told the committee before the vote that shutting down the PCAOB would shift the funding burden of audit oversight from public companies to taxpayers and could lead to oversight disruptions by handing duties to an SEC that is not currently equipped to handle them. The SEC approves the PCAOB's annual budget, which is nearly $400 million.

"The PCAOB is doing effective work, and it doesn't cost taxpayers a dime," Waters said. "Abolishing it and adding an unnecessary new workload to the SEC is the very definition of waste and inefficiency."

Rep. Brad Sherman, a California Democrat, told the committee that shutting down the PCAOB could also weaken investor confidence in U.S. financial reporting, thereby reducing the attractiveness of U.S. capital markets.

"Why would investors invest in American companies or companies listed on American exchanges if they can't be confident that auditors will be overseen?" said Sherman, a certified public accountant. "They know it's necessary because they lived through WorldCom and Enron."

The effort to abolish the board and shrink the CFPB is one of many moves by the Trump administration to deregulate and cut federal spending.

PCAOB Chair Erica Williams on Tuesdaycriticized the Republican effort to abolish the board。

"The deterrent effect of PCAOB enforcement prevents misconduct that puts investors at risk," she said in a statement. "I am deeply troubled by the draft legislation being considered in the House."

"The PCAOB's unique experience and expertise built up over decades cannot simply be copied and pasted without significant risk to investors at a time when markets are already volatile," Williams said.

"Just in terms of inspections, the disruption while a new program is stood up and running could last for years," Williams said.