In its proposed budget for 2021, the White House called for the Public Company Accounting Oversight Board’s (“PCAOB”) “functions and responsibilities” to be consolidated into the SEC. According to the administration, having the SEC absorb the PCAOB’s functions will clarify existing ambiguity and duplication among the two regulators, and promote “constraint” over the fees the PCAOB charges to public companies and broker-dealers to fund the PCAOB. While the SEC currently oversees the PCAOB, it is unclear how—and the extent to which—the SEC would execute the functions now performed by the PCAOB.
Created by the Sarbanes-Oxley Act of 2002, the PCAOB was intended to provide independent oversight of auditors of public companies and broker-dealers. Sarbanes-Oxley called for these auditors to register with the PCAOB and for the PCAOB to set, for the first time, independent audit standards for the industry (which had previously been self-regulated). The PCAOB enforces these standards by conducting inspections of public accounting firms and may investigate and discipline firms for violations of the audit standards, or other rules or laws applicable to audits. The PCAOB’s narrow mission contrasts with the broad scope of the SEC’s activity. The White House’s budget correctly notes that the SEC has certain regulatory authority over public accounting firms, but the SEC, even prior to the enactment of Sarbanes-Oxley, was not responsible for setting audit standards and did not perform audit inspections of the type conducted by the PCAOB.
At present, the consolidation is merely a proposal, but it signals that audit oversight is a target of the administration’s general aim of streamlining regulation and reducing costs on regulated industries.