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After backlash, U.S. auditor watchdog head faces uncertain future

WASHINGTON (Reuters) – A controversy is heating up over the naming of the government’s top audit regulatory official, as the U.S. Securities and Exchange Commission considers a replacement for an incumbent who is backed by investor advocates.

The choice of a leader for the U.S. Public Company Accounting Oversight Board (PCAOB) will help decide the fate of reforms backed by the current chairman, James Doty, a lawyer who has raised the ire of businesses and Big Four accounting firms.

It will also be a test for SEC Chair Mary Jo White, who has faced criticism from liberals for not being aggressive enough on investor reforms, with some groups calling for her ouster.

If Doty is replaced, “White would have burnt her bridges to the investor community,” Columbia University law professor John Coffee said in a law journal article on Thursday.

Created in 2002 to clean up auditing after the Enron and WorldCom frauds, the PCAOB inspects and disciplines public companies’ auditors and writes standards for the industry.

The SEC is reviewing three possible candidates for the chairmanship: Doty, whose term expires in October; current PCAOB board member Lewis Ferguson; and William Duhnke, the Republican staff director and general counsel for the Senate Banking Committee, said sources familiar with the matter.

A spokeswoman for Doty and Ferguson declined to comment. Duhnke did not respond to an email seeking comment.

Doty is the favored candidate among the two Democrats on the five-member commission. “It only makes sense for Chairman Doty to have the opportunity and time to finish what has been started under his leadership,” Democratic Commissioner Luis Aguilar said in an interview.

The commission’s Republicans have been critical of some PCAOB projects under Doty’s leadership.

He has also faced criticism from SEC Chief Accountant James Schnurr, who has faulted the PCAOB for “moving too slowly” on new audit standards.

Doty’s move to put term limits on auditors to improve their independence also drew opposition from the U.S. House of Representatives, which voted to block it.

“There definitely seems to be disquiet and a search for a more business-as-usual head,” said Jeff Hauser, a project manager at the Center for Effective Government, a good-government advocacy group.

It is unclear when the five-member commission will vote on a new chairman. But if White wants it done soon, she will need to act before Oct. 2, Republican Commissioner Dan Gallagher’s last day at the SEC.

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