Atkins Treads Familiar Path with Audit Board Leadership Overhaul

SEC Chair Paul Atkins is following a familiar path in his approach to the US audit board: replace its members and force an agenda reset.

The Public Company Accounting Oversight Board, a small Washington regulator created out of the ashes of the Enron and WorldCom scandals, is facing its third overhaul in less than 10 years.

That whipsaw in who runs the board and what policies and approach members bring to its mission could set back efforts to update US audit standards, investors fear. Audit industry advocates hope a new roster of leaders could take dramatic steps to reimagine the regulator.

“I don’t think it’s good for the organization, I don’t think it’s good for audit quality,” said Jack Ciesielski, an accounting analyst and president of the investment research firm R.G. Associates. “How can you have institutional memory built up if you have amnesia every four years.”

Congress never intended the nonprofit board, designed as an audit-industry watchdog, to become a political football. Rather, it’s structured as an independent standard-setter with a steady funding stream paid by US companies. But politics has seeped in over the years.

Atkins, a longtime PCAOB critic, said Wednesday that he would like to fill all five board seats with applicants who’ll keep a lid on spending and not impose “unnecessary costs” on listed companies and brokerages that fund the board’s $400 million budget through fees.

The announcement came on the heels of acting Chair George Botic taking over after Erica Williams, who’d led the board since 2022, stepped down July 22.

Past Precedent

Atkins is following a model set by past SEC chairs empowered by a 2010 Supreme Court decision that upheld the constitutionality of the PCAOB, but also gave the commission the authority to replace audit board members without cause.

Then-SEC Chair Jay Clayton, during the first Trump administration, took advantage of expired terms to install five new board members in 2017.

Four years later under then-President Joe Biden, SEC Chair Gary Gensler fired then-PCAOB Chair William Duhnke and told the remaining members they could re-apply for their seats.

Williams, who joined at the board in 2022, said Atkins asked her to resign.

The four remaining Gensler-era members will stay in their posts until they resign or their successors are selected.

The SEC did not to respond to questions about when the board members learned they would be replaced or how the leadership swap would benefit audits and financial reporting. The PCAOB declined to comment Thursday.

Christina Ho, one of the board’s two CPAs, faces an expiring term in October. But Botic, along with former SEC commissioner Kara Stein and Tony Thompson, who previously worked with Gensler at the Commodities Futures Trading Commission, all have several years left in their five-year PCAOB terms.

Pendulum Swings

The Duhnke board dealt with the fallout from an inspections cheating scandal and the Covid-19 pandemic. Inspection violations shrank, as did enforcement sanctions, and he eliminated the board’s two advisory groups.

Willliams took a more aggressive approach to all three segments of the board’s work: setting a higher bar by rewriting standards, imposing pricier penalties particularly for larger firms, and rooting out more violations through its inspections. She clashed with the audit industry over the board’s flood of standards update—a record seven in just three years.

Colleen Boland, a critic of Williams’ approach, called the agenda shifts from board to board “breathtaking.” But she’s hopeful that this next iteration could make systemic changes to the PCAOB’s operations.

One frequently cited idea: the board could hand off enforcement to the SEC and outsource standard-setting so that the lawyers who have traditionally run the board are no longer responsible for writing audit rules.

“There is an appetite for slimming things down,” said Boland, an associate accounting professor at the University of Wisconsin-Milwaukee and a former PCAOB economic research fellow.

Many of the board’s standards have gone largely untouched since its 2002 creation and reflect rules set by the audit industry. The industry clashed with the Williams-led board as it pushed out a rapid succession of proposals that stakeholders said gave them little time to review and that would have in some cases dramatically expanded the scope of audits.

Still, board detractors and supporters alike have been calling for reforms since the spring when Republicans in Congress attempted—ultimately unsuccessfully—to dissolve the PCAOB in a budget reconciliation bill. Both camps acknowledge, however, that flip-flopping with each change in the White House doesn’t help advance audit quality or the reliability of corporate financial statements—the board’s ultimate goal.

And while the board rebuilds, new risks loom for auditors, from the use of artificial intelligence in corporate reporting to the rise of cryptocurrencies in the financial markets.

“Strong oversight of the public company audit profession is essential to accountability, audit quality, and investor protection,” the Center for Audit Quality, which represents the interests of audit firms, said in a statement. “As the PCAOB enters a period of transition with new leadership, dedication to the mission and expertise in audit and assurance will be important, particularly in a rapidly evolving marketplace.”