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Republicans in the House Financial Services Committee voted to advance a proposal that would eliminate the PCAOB and fold its functions into the SEC, as part of negotiations around the US budget package. The vote was 30–22 along party lines, the Wall Street Journal reported.
Erica Williams, chair of the PCAOB, denounced the draft legislation. “History tells us that when the economy is tight, the risk of fraud goes up. And the stakes are high,” she told the Wall Street Journal. “With millions of Americans invested in the stock market, including through 401(k)s and pensions, auditors need to perform their audits with more care than ever. Now is not the time for a major disruption in audit oversight.”
The PCAOB was created by the Sarbanes-Oxley (SOX) Act in 2002 to increase investors’ confidence in the stock market in the wake of the Enron and WorldCom scandals. Williams reminded listeners of that history in an April 29 speech at the PCAOB Investor Advisory Group Meeting, in which she said she was “deeply troubled” by the threat to the PCAOB. Following those scandals, “investors lost billions of dollars in savings, workers lost their jobs and their retirement, and trust in our markets eroded,” she said.
SEC ≠ PCAOB: There’s been a longstanding debate over whether the SEC could or could not take over the PCAOB’s functions. Paul Atkins, the current SEC chair, has long been critical of the PCAOB.
The SEC won’t be able to readily assume the PCAOB’s functions, Williams, who worked for the SEC for 11 years, argued in her speech. A “minimum of 480 experienced staff” is needed to complete the inspections required by SOX, she said, adding that it would be hard for the SEC to find staff with expertise matching that of the current PCAOB staff. PCAOB inspectors, she said, “average 22 years of experience, including a decade in public accounting before ever joining” the organization.
Folding the PCAOB into the SEC would also severely weaken audits of international companies, including those in China, Williams said. The PCAOB has negotiated agreements with “more than 50 jurisdictions around the world” in which it conducts inspections, she said. Were the PCAOB to be dissolved, the SEC would have to renegotiate all those agreements, “which could take years,” she added.
“Every member of the PCAOB team plays a critical role in executing our mission of protecting investors on US markets,” Williams concluded. “And they are irreplaceable.”