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A Republican initiative to eliminate the US regulatory body that supervises accounting firms could harm audit quality not just in the US but globally, as per the organization’s chair.
Erica Williams, who has led the Public Company Accounting Oversight Board since 2022, shared in a Financial Times interview that this proposal could disrupt international agreements allowing US inspectors to review audit firms in various countries, including China and the EU.
The PCAOB was created to oversee auditors of US-listed companies, irrespective of their location, and conducts regular inspections worldwide to enforce industry standards.
Out of 1,519 audit firms registered with the PCAOB, 844 are outside the US. Over the last two years, it has imposed penalties on firms from several nations, including the Netherlands, Indonesia, Australia, and Japan.
“Our inspection program sets a global standard,” Williams noted during the interview. “In new jurisdictions, we frequently discover high deficiency rates, particularly in China and Hong Kong. Studies have shown PCAOB inspections enhance audit quality through repeated evaluations.”
Republicans propose merging PCAOB’s functions into the Securities and Exchange Commission as part of President Donald Trump’s deregulation efforts. Although PCAOB staff may transition to the SEC, they might face pay reductions, as the PCAOB operates outside government salary frameworks.
Recent draft legislation, which passed the House committee on financial services, would remove the funding fees that support the PCAOB’s approximately $400 million yearly budget.
Williams stressed that the SEC would require “hundreds more staff” to take over PCAOB duties and must “negotiate new agreements globally” to replace existing arrangements for international inspections.
Establishing those agreements took years, and China only permitted inspectors in for the first time in 2022 after Congress threatened to delist Chinese companies from US stock exchanges.
In a recent letter to Democratic members of the financial services committee, Williams claimed that “investor protection for Chinese companies would, at a minimum, be severely affected.” She mentioned to the FT that Republican committee members hadn’t consulted the PCAOB prior to drafting the legislation, which is being discussed for inclusion in a major tax and spending bill in Congress.
Williams’s tenure has been marked by rising tensions with the audit sector. The PCAOB’s inspections uncovered more deficiencies in US company audits, imposed record fines, and large firms argued that its standard-setting process lacked proper input from the profession.
When asked if the increasing tensions could have influenced Republican feelings towards the agency, Williams refrained from commenting but remarked that her initiatives have yielded positive results.
“When we started, deficiency rates were not where they should be and were on the rise. Last year, we saw substantial improvements in our 2024 inspection results across all firms,” she stated.
The proposal to abolish the PCAOB faces many challenges before it can become law. Its inclusion in the tax and spending bill, known as a reconciliation bill, hinges on negotiations among the Republican leaders in the House and Senate, along with its classification as a budgetary measure.
Additionally, it has not yet been evaluated by the Congressional Budget Office, which will assess its fiscal implications.
A group of former PCAOB advisors argued in a letter to the financial services committee that the initiative is “a disingenuous tactic by bill sponsors to portray this as a measure for reducing the deficit,” highlighting that PCAOB is funded independently of taxpayer money while the proposed legislation would impose extra costs on the SEC.
Williams stated that the PCAOB is “prepared” to assist the CBO with its assessment.
