Dive Brief:

• The House Financial Services Committee advanced Republican-backed legislation that would scuttle the independent watchdog for accounting firms that audit publicly traded companies, and would shift its duties to the Securities and Exchange Commission.
• The legislation, if signed into law, would end a levy on companies and broker dealers used to fund the Public Company Accounting Oversight Board. Rules and processes currently overseen by the board would carry over into the SEC, which would pursue oversight using taxpayer dollars.
• The committee’s Republican majority seeks to defund the PCAOB as part of efforts across several committees to pass legislation funding the federal government. The panel approved the legislation, which would also reduce the budget for the Consumer Financial Protection Bureau, in a 30 to 22 partisan vote on Wednesday.

Dive Insight:

Congress, in a widely supported bi-partisan effort, created the independently funded PCAOB in 2002 following multi-billion-dollar accounting scandals at Enron and Worldcom.

Before the evening vote, Democrats on the Financial Services Committee condemned efforts to eliminate the PCAOB, quoting Republicans who championed creation of the board such as former Rep. Michael Oxley from Ohio. Oxley chaired the committee from 2001 until 2007.

Democrats on the committee also cited more recent comments backing the PCAOB by other leading Republicans, including Jay Clayton, who chaired the SEC from 2017 until 2020.

“The PCAOB’s work furthers the public interest, including the protection of investors, through its oversight of the preparation of independent audit reports,” Clayton said in a 2017 statement hailing a new board rule strengthening audit standards.

Shuttering the PCAOB would shift the burden for funding oversight of audits from publicly traded companies to taxpayers and risk a lapse in oversight by assigning to the SEC duties that it is currently ill-equipped to handle, Rep. Maxine Waters, D-Calif., told the committee before its vote. The SEC approves the PCAOB’s annual budget, which is close to $400 million.

“What the PCAOB is doing is working, and it doesn’t cost a single taxpayer dollar,” Waters said. “Throwing it out and adding a new, unnecessary workload to the SEC in its place is the very definition of waste and inefficiency.”

Shutting down the PCAOB also risks reducing investor confidence in U.S. financial reporting and, in turn, dimming the appeal of U.S. capital markets, Rep. Brad Sherman, D-Calif., told the committee.

“Why would somebody invest in American companies or those listed on American exchanges if they have no assurance that the auditors will be audited?” said Sherman, a CPA. “They know full well that’s necessary because they all lived through Worldcom, they all lived through Enron.”

The effort to eliminate the board and scale back the CFPB is one of many Trump administration initiatives to soften regulation and slash federal spending.

PCAOB Chair Erica Williams on Tuesday criticized Republican efforts to wipe out the board.

“The threat of PCAOB enforcement deters wrongdoing that puts investors at risk,” she said in a statement. “I am deeply troubled by draft legislation being considered” by the House.

“The unique experience and expertise built up by the PCAOB over decades cannot simply be cut and pasted without significant risk to investors at a time when markets are already volatile,” Williams said.

“The disruption to inspections alone while a new program gets up and running could last years,” Williams said.