Senate Proposal Risks Handing SEC Unfunded Audit Oversight Job

A Senate Republican plan to shutter the nation’s auditor oversight board and roll its responsibilities into the SEC would leave the Wall Street regulator with a hollow new mandate without a clear way to pay for the work, audit industry watchers warn.

The budget plan would disband the Public Company Accounting Oversight Board and its separate funding while handing its duties to the Securities and Exchange Commission. But the measure would prevent the SEC from tapping fees that historically funded its operations to regulate the audit industry.

This means that as written, the Senate measure risks leaving the industry largely unregulated—threatening a return to the era before the 2001 Enron accounting scandal when auditors policed themselves and wrote their own rules. The Senate didn’t address whether the SEC in the future could receive additional taxpayer dollars to cover what would be a new directive from Congress.

“It would be regulatory limbo,” said Tom White, a retired WilmerHale corporate law partner, who represented accounting firms.

The Republican-led Senate Banking Committee included provisions eliminating the PCAOB in text slated to form the chamber’s reconciliation bill, a sweeping tax and spending package that would enact President Donald Trump’s agenda. House lawmakers also targeted PCAOB in their version.

The Senate measure “ensures the SEC continues to carry out the PCAOB’s mission—but with less duplication and at a lower cost to taxpayers,” a spokesperson for Sen. Tim Scott (R-S.C.), Banking Committee chair, said. Committee Republicans estimate the audit reforms would save $771 million over 10 years; the board’s current budget is $400 million.

Funding Limits

SEC Chair Paul Atkins has previously said that the Wall Street regulator could handle the board’s duties overseeing the work of accountants tasked with vetting the revenues and assets underpinning US stocks worth trillions. But he told lawmakers that he would likely seek additional funding to pay for that work on top of $100 million he set aside in the agency’s 2026 budget.

The Senate committee’s draft text, however, wouldn’t allow Atkins to tap transaction fees that contribute to the commission’s funding to pay for those extra responsibilities.

Congress created the PCAOB in 2002 to serve as an auditor watchdog and shore up investor confidence in corporate financial statements by setting and enforcing standards and reviewing the work of auditors. The board, overseen by the SEC, was the keystone of the corporate reform law known as the Sarbanes-Oxley Act passed after the collapse of Enron Corp. and WorldCom Inc.—two of the largest bankruptcies in US history.

But the Senate provision would likely force the SEC to seek annual appropriations from Congress to pay for its expanded role regulating auditors. Congress could opt to rescind limits on the SEC’s use of transaction fees in future legislation, said Dan Goelzer, a former SEC general counsel and one of the original members of the PCAOB.

Limiting the fees, even temporarily, ensures that the SEC’s spending related to auditor oversight isn’t factored into the price tag of the Senate’s spending package, Goelzer said.

Provisions in the bill must have a budget impact under Senate rules that govern reconciliation—a process that allows majority parties to fast-track legislation related to spending or revenue.

SEC Commissioner Mark Uyeda told Bloomberg Tax that the SEC would have to take up any funding gap with its appropriators in Congress.

The PCAOB declined to comment but board Chair Erica Williams has previously warned about the high cost to replicate its inspection program and hire professionals to staff it. Roughly 480 PCAOB employees are responsible for inspecting the work of auditors, according to the board.

Guardrails Targeted

The possibility that a divided Congress could restore funding for audit regulation provides little comfort for investors and other audit watchers who argue the bill would remove critical market guardrails.

Ensuring that regulators keep watch over auditors’ work is particularly important now, said Anthony Scilipoti, president and CEO of Veritas Investment Research Corp., which focuses on Canadian and US-listed companies.

“Companies only push the accounting envelope under pressure—tariffs and economic shifts are pressures,” Scilipoti said in an email. “Companies are starting to push.”

Inspections serve as the board’s primary oversight tool, offering routine assessments of whether firms meet core audit standards. Those mandatory inspections replaced industry-led peer reviews used before Congress created the board to ensure auditor objectivity and independence.

Investors stand to lose guardrails that were designed to subject corporate accounting to rigorous outside review, said Francine McKenna, a critic of the audit industry and a former corporate compliance adviser at PwC and other consulting firms.

“You are not going to get any assurances that the financial information that you’re getting has been vetted by anybody independent of company management,” McKenna said.

The accounting industry hasn’t directly called for the board’s elimination but has opposed the PCAOB’s more aggressive standard-setting and enforcement agenda under Williams. Still, the industry supports retaining some type of regulator.

“We will work with whatever regulator Congress deems appropriate to ensure audit quality,” the American Institute of CPAs, the industry’s largest trade group, said in a statement.

But some auditor advocates are worried about the repercussions should Congress fail to come up with additional resources for the SEC.

“To just say we’re just going to cut off your air supply and let the chips fall where they may, I don’t see how that benefits anybody,” White said. “I certainly don’t see how it benefits America’s capital markets.”