US Audit Board Awaits Latest Shake-Up With New Slate of Leaders

A new slate of leaders is poised to make its mark on the US audit board and launch the next chapter for the embattled regulator.

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Among those set to serve on the Public Company Accounting Oversight Board are two administration officials who have held key roles at federal agencies targeted by a White House campaign to hobble federal agencies and derail regulations. Those agencies include the Consumer Financial Protection Bureau and the National Credit Union Administration.

The PCAOB last year was also caught up in the administration’s efforts to rein in the federal bureaucracy. Republican lawmakers attempted to sunset the board and hand its duties over to the Securities and Exchange Commission, which oversees the board and named the new leaders.

On this episode of Talking Tax, Senior Reporter Amanda Iacone discusses the incoming board members and what this latest leadership shake-up means for the future of the independent audit regulator.

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This transcript was produced by Bloomberg Law Automation.

David Schultz (Host):

From Washington, I’m David Schultz, and this is Talking Tax.

Over the past few years, change has been the only constant at the regulatory body that oversees auditors. The Public Company Accounting Oversight Board, or PCAOB, saw its lineup change when Donald Trump first came into office, then again after Joe Biden was elected, and now it’s happening again. Four of the five members of this board are being swapped out, and this time, some of the new members have close ties to the White House. It’s the latest move in an ongoing battle over whether this regulator should even exist, and if so, in what form.

And we’re going to get into that today, along with the most recent personnel moves at the PCAOB, with Bloomberg Tax Reporter Amanda Iacone. I started our conversation by asking Amanda to bring us up to speed on what this board is, what it does, and why it was created.

Amanda Iacone: Well, the PCAOB’s origin story starts with the collapse of two companies called WorldCom and Enron. They were two of the biggest bankruptcies in U.S. history, and after this avalanche of corporate collapse, Congress stepped in with landmark investor protection law that did a number of things, but creating an auditor watchdog was really the centerpiece of what’s now known as the Sarbanes-Oxley Act. Congress gave the board, known as the Public Company Accounting Oversight Board, authority to regulate auditors that public companies hire.

Host: So this came out of the, for lack of a better word, accountingpocalypse of the early 2000s.

Amanda Iacone: Correct. That’s right.

Host: And maybe other folks are clearer on this, but I just want to make crystal clear that the PCAOB is not the same thing as the FASB or FASB, that these are two different agencies that do two different things, but I think that a lot of people confuse them. Can we get into the distinctions between those two bodies?

Amanda Iacone: Sure. A couple notable distinctions. The FASB is a standard setter. They are a private organization based in Connecticut, and their role is to write the rules that companies, whether public or private, and also large nonprofits use when reporting out their results to investors or shareholders.

The PCAOB is a creature of Congress. It was created by Congress. Its funding scheme is in federal law, but it stood up to be an independent nonprofit, so it’s not technically part of the federal government. And it wears a couple hats. It sets audit standards, so it is a standard setter in that regard. It also conducts routine examinations of the work of auditors. The board inspects regularly audit firms all across the globe, not just those based here in the US. And it also, because it’s a regulator, it has authority to enforce its rules and its standards.

Host: Thank you for clearing that up. Okay, let’s get into now what is happening here. The PCAOB is getting a lot of new members. There’s a lot of changeover happening right now.

Amanda Iacone: Four out of the five board members are changing.

Host: That’s quite a bit.

Amanda Iacone: That’s right. This is the latest overhaul of the leadership of the PCAOB. We’ve had three of these massive leadership changes at the board in less than a decade. Since President Donald Trump’s first term in office, each successive administration has replaced all or most of the board’s five members. So we’ve seen these really dramatic shifts in not just personnel leading the board, but also strategy, approach, agenda as well.

Host: That is pretty significant. But it sounds like this time, one of the things that’s unique is that some of the new members of the board have pretty strong ties to the executive branch. Can you explain what the connections are and why that’s important?

Amanda Iacone: Yeah, it’s rare for board members to come directly from the White House in particular. Past members have worked for other parts of the executive branch, for example, the Federal Reserve. But two of the new appointees are political appointees who are currently tasked with carrying out the White House’s agenda, which has primarily been focused on reining in the federal bureaucracy. One of them worked directly for Russ Vought, who is directing that agenda and who is among the principal authors of the conservative playbook known as Project 2025.

Host: And we should say he’s the head of the Office of Management and Budget right now.

Amanda Iacone: That’s right. He also is the director of the Consumer Financial Protection Bureau. And we should also note that the playbook, Project 2025, called to eliminate both the CFPB and the PCAOB, which Republicans tried to do legislatively last year, but were stymied in the Senate.

Host: Well, let’s get into that. What happened there? We talked about this on the podcast last year with now outgoing board member Christina Ho, who sort of advocated for folding the PCAOB into its parent agency, the SEC. That didn’t happen. What came of that?

Amanda Iacone: That’s right. The PCAOB survived a GOP bid to eliminate the board and hand its role to the SEC last year. Republicans were using a process called reconciliation to fast track much of President Trump’s agenda last year. But Senate rules kind of got in the way and ultimately the provision was barred from advancing. And so we still have a PCAOB today and it’s still operating, still overseeing auditors ,and waiting to welcome in this new slate of leaders.

Host: But, you know, that raised a lot of questions about the board’s independence. It sounds like this new slate of board members does the same thing, that their ties to the executive branch makes some people worried that the PCAOB is not going to be as independent as it was originally intended to be. Is that what the name of the game here is that we’re talking about is how independent is this board?

Amanda Iacone: Yes. And, you know, normally the questions of independence focus on its independence from the audit industry. It oversees. Those concerns do linger. The new chair is a retired EY audit partner. We have had Big Four audit partners serve on the board in the past. And now we add this additional layer on top of independence from Washington politics.

We talked a little bit earlier about the differences between the FASB and the PCAOB. And one of them is geography. The FASB is based in Connecticut. It’s near New York City, you know, the financial hub of the world. But it’s far, far away from Washington politics. And the PCAOB, on the other hand, is based on K Street. It’s just blocks from the White House.

And these appointments add to those concerns for watchers of the board.

Host: So we have these questions about the PCAOB’s independence, but there are other threats to the board that outsiders have identified. And one of those is the pay of the members of the board. What’s going on there? Why does it matter how much these people are getting paid?

Amanda Iacone: This wasn’t that big of a surprise that the board, as part of its budget process, cut the pay of board members. The real question was how deep those cuts would go. The board’s budget for 2026 basically cut the pay in half for PCAOB board members. They have long been considered among the highest paid Washington regulators. And even with these pay cuts, the board members will still out earn SEC Chair Paul Atkins. But they lag behind other standard setters, a.k.a. the Financial Accounting Standards Board, whose members earn more than a million dollars each.

The pay was intended to be enough to attract people with enough experience, clout, reputation, significance, to be able to attract them to not just serve on the board, but move to Washington, which if you’re from New York or the other side of the country, you might be less interested in spending four or five years in D.C. But the board’s pay has been frozen since 2009, in large part due to pushback from SEC commissioners who thought that the pay was extravagant. So this is the first time that the pay has changed in, you know, 15 years.

Host: Yeah. And it sounds like, I mean, like you said, they’re still making very healthy salaries for most people. But we’re not talking about most people. We’re talking about people who could earn way, way more in the private sector if they wanted to. And so that’s what the issue is, right? That it’s about, can you attract the type of people who have the expertise to be able to audit the auditors?

Amanda Iacone: That’s right. And the flip side of that is, does the pay become too extravagant that it becomes a payola situation where you can reward your, you know, your colleagues, your senior staff, if you’re a member of the Hill, or administration officials with a lucrative, cushy job running a little regulator that few people have ever heard of?

Host: All right. Let’s finish off with the 30,000-foot view here. The PCAOB has a lot of people externally who want to change the way it operates. And let’s get into a few of those camps here. First off, the auditors, the ones who are being regulated by the PCAOB, what did they want? What did they want the board to look like in five or 10 years?

Amanda Iacone: The biggest firms recognize that they are a regulated industry. And whether that’s the SEC doing that, or the PCAOB doing that, that there is oversight that they have to be responsive to. They are able to advocate forcefully on their own behalf with their regulators. Smaller firms struggle with this regulatory regime, and they sort of have a different set of issues. The question for auditors is, who is overseeing them? Who is inspecting them? And just what the rules of the road are that they need to follow.

Host: So they want some regulators, just a matter of who the regulator is and what they’re allowed to do.

Amanda Iacone: And of course, like any regulated industry, they want as much say as they can over who’s crafting the rules and what those rules look like. They’re always going to butt heads with whoever is writing the rules. That’s not going to change. But if this pattern keeps repeating of these massive paradigm shifts at the board, the tables will turn eventually, and there will be a new board with a new view, and the approach and the rules might change again.

Host: But then let’s get into the Republicans, like OMB Director Russ Vought, who seems like their goal is to sort of make the PCAOB not independent at all, or at least certainly much less independent than it used to be. They tried to do that last year on Capitol Hill, as we talked about. What’s next for them? Are they going to keep trying different avenues to sort of minimize the power that this independent agency has?

Amanda Iacone: I would expect that there continues to be interest in finding a way to eliminate this board, similar to efforts to eliminate the Consumer Financial Protection Bureau. There is a streak within the current Republican Party that is very interested in reining in the federal bureaucracy, and the PCAOB has been pulled into that debate. They talked about doing something similar during President Trump’s first term in office, and so I don’t see that desire to rein in this audit regulator going away.

Host: And then finally, really quickly, let’s talk about another camp that we haven’t really gotten into, but these folks presumably would really, really like the PCAOB to be as independent as possible, and we’re talking about investors who really want to make sure that the companies they’re investing in are audited in a very thorough way. What do they make of all of this, and what are they doing, if anything, to try to keep the PCAOB as it is?

Amanda Iacone: Well, that’s right. I mean, investors and consumer advocates have both lined up to support the PCAOB, particularly over this past year with the fight on Capitol Hill about its future. The board was created to protect investors of all stripes and sizes and to ensure that auditors are doing a diligent job vetting the books and records of the companies they audit. They will continue to pressure the board and continue to advocate on behalf of policies that benefit investors. And if we were to have another corporate collapse, it would raise a lot of questions about where were the auditors? What was the audit regulator doing to ensure that those auditors were doing a good job, doing a thorough job?

Host: All right. Well, that was Amanda Iacone speaking with me about the PCAOB. Amanda, thank you so much.

Amanda Iacone: Thanks, David.

Host: And that’s it for today’s podcast. You can find up-to-the-minute news on the latest tax and accounting developments at our website, news.bloombergtax.com. That website, once again, is news.bloombergtax.com.

Today’s episode is produced by myself, David Schultz, and our editor was Amelia Gruber. From Washington, I’m David Schultz. Thanks for listening.