Auditors could face less heat with Trump in the White House
Published March 5, 2025
If history repeats, PCAOB enforcement activity will decline during the President’s second term.
The number of enforcement actions finalized by the Public Company Accounting Oversight Board reached a seven-year high in 2024, according to a report by Cornerstone Research.
Available data suggests a connection between politics and PCAOB enforcement activity. The auditor-watchdog agency concluded 40 such actions last year, the final one of Joe Biden’s presidency. That was three short of the record 43 in 2016 and 2017, the last year of the Obama Administration and the first year of the first Trump Administration.
President Trump is not a particular fan of regulations. The level of PCAOB enforcement plummeted during his term, ending with 12 finalized actions in 2020.
If history were to repeat, now that Biden is out of office, the level of enforcement activity would stay high this year, then begin to fall sharply. Accordingly, companies and their auditors may reasonably look for enforcement of auditing regulations to ease up over the next few years.
The PCAOB finalized a total of 126 enforcement actions — 101 of them auditing actions — during the first Trump term. During Biden’s term, the corresponding numbers were 160 and 124, or increases of 27% and 19%, respectively.
However, those gaps in the numbers of actions paled in comparison with the vast differential in total monetary penalties assessed during the last two administrations: $10.1 million in Trump’s, $67.8 million in Biden’s. The median monetary penalty for auditing actions during the Biden years was four times the median while Trump was in the White House.
More than half of the total penalties assessed while Biden was in office were handed down in 2024. In fact, last year’s $35.7 million in penalties — virtually all for auditing violations — accounted for 38% of the total $94 million imposed since the PCAOB’s 2005 launch. And it nearly doubled the previous record for largest penalties, set the prior year.
But it was one blockbuster fine, of $25 million against KPMG in the Netherlands, that accounted for most of the increase in total penalties last year. The largest fine the PCAOB has ever imposed, it was for systemic internal exam cheating over five years.
Another difference in 2024 was the proportion of actions against firms versus individuals. In 2023, the ratio was 34 to 19; last year it mostly evened out at 26 to 23.
Aside from last year’s monetary sanctions, which were imposed on 93% of targeted firms, nearly three-fourths (71%) of them were required to take remedial actions, including actions related to quality control policies and training, according to the Cornerstone report.
Approximately one in five firms charged with auditing violations had their registration revoked on a temporary (14%) or permanent (7%) basis.
[CFO.com]
