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The Financial Times reported over the weekend on draft legislation prepared by Republican lawmakers that would, if enacted, shut down the PCAOB and fold its operations into the SEC. This draft legislation, which was published on Friday by the leadership of the House Committee on Financial Services, is intended to be included in a large tax and spending bill that is being worked on in Congress. As John noted back in December, elimination of the PCAOB is one of the policy objectives outlined by Project 2025.

The draft legislation contemplates the transfer of intellectual property retained by the PCAOB in support of its programs for registration, standard-setting and inspection to the SEC and the referral of pending PCAOB enforcement and disciplinary actions to the SEC and other regulators. All duties and powers of the PCAOB would be transferred to the SEC and employees of the PCAOB would be offered equivalent positions at the SEC. The legislation contemplates the transfer of any unobligated funds collected by the PCAOB to the U.S. Treasury and an end to collection of the accounting support fee.

The Financial Times article notes that this legislative initiative does face some additional hurdles:

It faces procedural hurdles, however. The full House Committee on Financial Services will consider the legislation in the coming days, but whether it will be included in the tax and spending bill, known as a reconciliation bill, will depend on negotiations within the Republican leadership in the House and Senate and whether it is deemed a budgetary measure.

While the Sarbanes-Oxley Act provisions that directed the establishment of the PCAOB represented a bipartisan effort seeking to address significant concerns with the accounting profession highlighted by the corporate scandals of the early 2000s, the regulator has been a lightning rod for criticism since its inception. For example, then-SEC Chairman Harvey Pitt resigned following criticism of his selection of Judge William Webster to serve as the first Chairman of the PCAOB, after reports emerged that Pitt failed to inform the other SEC Commissioners that Webster once served on the board of a company accused of fraud. In 2017, the entire PCAOB board was replaced, and subsequently Harvey Pitt was brought in to evaluate the PCAOB’s governance when issues about the Board’s leadership were identified through whistleblower complaints. For more on the history of the PCAOB, check out the SEC Historical Society’s Gallery: “Auditing the Auditors: Creating the Public Company Accounting Oversight Board.”

– Dave Lynn