SEC Chair Gary Gensler summarily removed the chairman of the Public Company Accounting Oversight Board (PCAOB), William Duhnke, in June 2021 and intends to replace the other four commissioners in the near future. He argued his actions were necessary to ensure that “public company audits are informative, accurate, and independent.” The PCAOB also had been under fire in 2017 when then-SEC Chair Jay Clayton replaced its entire five-member board for leaking confidential information.
In May 2021, Senators Bernie Sanders (I.-Vt.) and Elizabeth Warren (D.-Mass.) wrote to Gensler urging the SEC to remove all members of the PCAOB for slowing enforcement actions of the auditing firms. They directed their concerns particularly at Duhnke’s leadership due to the PCAOB’s enforcement actions plummeting by 63%, Duhnke’s move to reduce the PCAOB’s budget, and his failure to hold a single advisory meeting in 2019.
In an April 19, 2021, letter to Gensler, a group of investors who are former members of the PCAOB’s Investor Advisory Group said: “There is considerable heavy lifting ahead to return the PCAOB’s focus to its primary mission of investor protection. Given their track record, we do not believe the current PCAOB Board members are up to the task of re-focusing the PCAOB on its core mission because they are responsible for the dramatic shift away from what investors expect.”
More pressure to tighten the screws on the PCAOB comes from consumer and environmental groups that want the SEC to upgrade the PCAOB as the SEC gets ready to issue new reporting standards on risks related to environmental, social, and governance (ESG) factors. Barbara Roper, director of investor protection for the Consumer Federation of America, wrote to the SEC expressing concerns that a weakened PCAOB would dilute the effectiveness of any new ESG reporting rules. “The PCAOB and SEC have in recent years taken a number of steps to weaken both the auditor independence rules and the PCAOB’s oversight of public company audits,” she wrote.
Jay Dubow, a partner with the law firm Troutman Pepper and former branch chief in the division of enforcement of the SEC, wrote in a blog post, “We expect that the enhanced enforcement of public company audits from the more active PCAOB will cause auditors to more aggressively seek and review information from their clients.”
Spokespeople for PwC, KPMG, and Deloitte & Touche LLP didn’t respond to emails asking if they’re telling their audit clients about the imminent, more muscular PCAOB. Julia Germain, manager of communications for the Center for Audit Quality, declined to comment.
September 2021
