In a Win for Audit Firms, PCAOB Withdraws Transparency Rules
February 13, 2025
In a move that aligns with President Trump’s deregulatory agenda, the Public Company Accounting Oversight Board (PCAOB) on February 11, 2025, withdrew a pair of rules intended to increase audit firm transparency that auditors had strongly opposed when the requirements were being written last year.
The PCAOB has indicated that it will do more work on the rules, but it is unclear if there will ever be any revised standards in the next four years.
During the Biden administration, which pursued an aggressive regulatory agenda, the PCAOB finally wrote the rules in response to a long-running push by investor advocates who said they need more consistent and useful information when ratifying the company’s external auditor. And the audit regulatory board has a single mission of protecting investors of public companies.
While the PCAOB is not a government, it is overseen by the SEC—a federal regulatory agency that regulates the capital markets. And the board’s rules must be approved by the commission before they can become effective.
The two rules—one is on audit firm reporting and the other is firm and engagement metrics—were adopted in November 2024 and sent to the SEC for approval. But the commission has to follow certain securities laws procedures, including notice-and-comment.
Time was already running out because the PCAOB adopted the rules on November 21, well after Trump won. And the SEC’s notices for comment on firm reporting were published in the Federal Register on December 5 and firm metrics on December 11.
Before administration change, the commission said in a January 14 release that it is giving the public additional time to comment on the two separate but related rules.
This already meant that the rules will not become effective even in the future, given the industry-friendly approach that SEC Chair nominee Paul Atkins is expected to take. He is awaiting Senate confirmation.
In the meantime, Acting SEC Chair Mark Uyeda has already been busy killing rules that businesses do not like or providing much longer time periods to comply with rules adopted that do not fall under so-called midnight regulations.
For example, also on February 11, Uyeda signaled that the SEC’s climate disclosure rule will not see the light of day.
Current Versions of Rules Dead, Will Revised Ones Surface?
The PCAOB’s notice to withdraw is in SEC Release No. 34-102399, and the brief release itself provides no reason.
However, the PCAOB said that the projects themselves are not dead.
The board has made the decision to withdraw after consulting with the commission to continue working toward versions of the two projects that can be approved by the new leadership of the SEC. Thus, both projects remain on the PCAOB’s agenda.
“The PCAOB looks forward to continuing to work with the commission and all stakeholders to protect investors and increase transparency,” a PCAOB spokesperson said in an emailed statement.
Reactions
PCAOB member Christina Ho, who was the lone dissent when the two rules were adopted last year, said in an emailed statement: “This is a testament to the notice and comment process and the power of expert voices. Nonetheless, I wish we did not waste the time of so many individuals and disrupt their holidays. I hope we prioritize genuine collaboration and thoughtful rulemaking going forward.”
In November, she had criticized the board’s action as midnight rulemaking, especially when the rules were proposed in April, setting a record.
“Never in the history of the PCAOB has the board rushed to adopt new standards and rules in the middle of a historic transition to new SEC leadership, let alone adopt standards and rules that are not ready,” she said at the time.
No Revival: Dead Dead
In the meantime, a founding PCAOB member was skeptical that the projects will be revived.
“The engagement performance and firm disclosures are almost certainly dead,” said Daniel Goelzer who served almost 10 years at the PCAOB until March 2012.
“When Paul Atkins takes office at the SEC, he will likely reconstitute the board,” said Goelzer who previously served as general counsel of the SEC. “I doubt that pushing the envelope on performance metrics will be a priority for the new board.”
Former FASB chairman Dennis Beresford who subsequently served on a PCAOB advisory group said it was the right thing for the audit regulatory board to withdraw the rules “as it avoids the deadline issue the SEC faced.”
“The major firms and others have raised issues with the ‘final’ standards that clearly warrant more consideration by the board,” Beresford pointed out.
Investor Advocate Unhappy
But a strong investor protection advocate expressed disappointment, especially as four other board members who approved the rules had said that the rules were studied for a long time for at least 15 years; thus, they were long overdue.
Former SEC chief accountant Lynn Turner noted that audit firms trumped investors once again and expressed disappointment towards the PCAOB.
First, the board set aside its project to write a stronger standard on the auditor’s responsibilities regarding the company’s noncompliance with laws and regulations, which was vehemently opposed by not only auditors but companies as well.
Now, the two audit firm transparency rules got sidelined.
“The SEC commissioners did not even take a vote on these rules,” Turner said, noting that the U.S. Treasury Department’s Advisory Committee on the Auditing Profession had recommended the PCAOB undertake these rules in October 2008.
“As a result, this PCAOB has short changed investors once again, while providing the auditing profession with what they pushed for,” said Turner who served on the PCAOB’s advisory boards in the last two decades.
“During that time, I have watched as time and time again the PCAOB has undertaken projects on improving various auditing standards and time and time again, after spending considerable time and money on the projects, they have failed develop a product, or at least a product that enhances the quality of audits in a meaningful way,” he said. “Yet during this time period, the board members have received some of the higher salaries paid to agency officials in DC.”
The PCAOB chair makes about $673,000, and other members are paid about $547,000.
[Thomson Reuters]
