Dozens of former regulators and academics are urging senators to oppose a provision in a budget reconciliation bill that would transfer the Public Company Accounting Oversight Board’s (PCAOB) functions into the Securities and Exchange Commission (SEC) because it violates the so-called Byrd Rule, which limits the bill to only those changes necessary to align federal revenues and expenditures.
The provision was included by the House Financial Services Committee into the budget bill which the House in May passed by a vote of 215 to 214. Folding the PCAOB’s work into the SEC would eliminate the accounting support fees that largely fund the audit board’s operations. President Trump wants the reconciliation wrapped up by July 4, 2025.
In a June 4 letter to Senate banking and budget committees, the former regulators and professors highlighted that the fees are collected from public companies and broker-dealers. The PCAOB’s 2025 budget is almost $400 million.
“The PCAOB does not receive any money directly from Congress, through the annual appropriations process or otherwise,” according to the letter, signed by 46 individuals, including former PCAOB Chair James Doty, founding PCAOB member Daniel Goelzer, University of Arizona Accounting Professor Preeti Choudhary who serves on the PCAOB’s advisory groups, as well as Colleen Honigsberg, a law professor at Stanford who serves on the SEC’s Investor Advisory Committee.
Further, they noted that the Sarbanes-Oxley Act of 2002—which established the audit regulatory board following accounting scandals at companies like Enron and WorldCom—said that the PCAOB is not “subject to procedures in Congress to authorize or appropriate public funds,” and that its accounting support fees and other receipts “shall not be considered public monies of the United States.”
They said that the provision violates several criteria of the Byrd Rule for inclusion in a reconciliation bill as follows:
- The PCAOB is a nonprofit that is not funded through the federal budget.
- The proposed provision would not result in a significant reduction to the federal deficit, because it would replace the PCAOB by establishing a new program at the SEC that would require similar funding to do the work.
- The PCAOB was created by a provision of Sarbanes-Oxley, which was enacted through regular order, not through budget reconciliation. “If this provision of the Act is to be overturned, that should also be accomplished through regular order rather than through budget reconciliation,” they wrote.
- The non-budgetary consequences are substantial relative to any budgetary consequences, which are merely incidental.
- The proposal relates to a specific organization and could be considered “targeting.” Targeting violates the Byrd Rule.
Investors Up in Arms
In the meantime, investor advocates have also urged Senators to reject the provision.
In a June 5 letter to Senate Majority Leader John Thune and Senate Minority Leader Charles Schumer, the influential Council of Institutional Investors (CII) said that the U.S. capital markets are the most efficient in the world “due, in no small part, to the effectiveness of both the SEC and the PCAOB.”
The CII represents benefit plans, foundations, and endowments with combined assets under management of about $5 trillion.
General Counsel Jeffrey Mahoney wrote that the CII membership-approved policy describes auditors as financial gatekeepers who must be subject to robust oversight and have real accountability as investors rely on audited financial statements in making investing decisions.
The CII’s policy states that Sarbanes-Oxley bolstered the “oversight and accountability of accounting firms” and continued “reforms are needed to ensure that the pillars of transparency, independence, oversight and accountability are solidly in place.”
Moreover, independent organizations should be the ones to write accounting and auditing standards as they would strive to make sure that the standards are of high quality and meet the needs of the investing public. And independent standard-setters must have sufficient funding and accountable to investors, the CII believes.
Thus, Mahony said that the CII opposes the provision in the reconciliation bill because it diminishes the independence of the PCAOB by eliminating its status as a private sector, non-governmental organization separate from the SEC. Moreover, the CII opposes the proposal because it would eliminate adequate and independent funding.
The end result would be weaker oversight of firms and reduced reliability of financial statements.
Members of the PCAOB’s Investor Advisory Group (MIAG) also sent a letter to Senators Thune and Schumer to express their concerns.
“The MIAG believes this proposed unfunded reassignment will harm investors by reducing investor protection and public trust in the U.S. capital markets,” the panel wrote on May 27.
Among other problems, the provision would dilute the SEC’s ability to carry out its mission because it would saddle it with extra “expansive new responsibilities” to set audit standards and inspect auditors.
This legislative effort is also coming at a time when the SEC lost about 15% of its staff largely as a result of buyouts stemming from the Trump administration’s efforts to streamline the federal government.
“Perhaps Chair Atkins can find a way for an underfunded and understaffed SEC to re-create inspections and standard-setting functions comparable to the PCAOB’s current programs,” the MIAG wrote.
“However, we believe that even with sufficient funding and staff it would take several years to recreate current PCAOB programs at the Commission and there would be considerable disruption and lack of continuity along the way,” the MIAG wrote. “Just building an SEC staff to replace the 480 PCAOB staff that conduct audit firm inspections would be a challenge; even if the SEC received sufficient funding appropriations to hire them. PCAOB inspectors are themselves experienced auditors and, given the talent shortage, there is significant demand for their skills.”
This article originally appeared in the June 6, 2025, edition of Accounting & Compliance Alert, available on Checkpoint.
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