Robust and independent audit is one of our key stewardship priorities. We seek to promote accounting practices that support long-term capital preservation and value creation. That means ensuring prudence to prevent overstatement, and maintain transparency around capital strength to help contain excessive risk-taking. Without these safeguards, high-profile accounting failures
are more likely, with serious consequences for investors, markets and long-term returns. That’s why recent developments in the US deserve close attention.
What happened?
Buried in Section 50002 of President Trump’s One Big Beautiful Bill, passed to the Senate before final approval in July, was a proposal to abolish the Public Company Accounting Oversight Board
(PCAOB) and transfer its responsibilities to the Securities and Exchange Commission (SEC). While this may seem like an administrative shift, it would have marked a fundamental reversal of
two decades of regulatory reform.
The PCAOB was created in 2002, in the wake of the Enron scandal. At the time, Enron’s collapse, triggered by fraudulent accounting, cost investors billions and destroyed public trust.
Its auditor, Arthur Andersen, failed to expose the deception and was forced to close within months. US lawmakers responded with the Sarbanes–Oxley Act, which introduced sweeping reforms, including the establishment of an independent audit regulator. Until then, audit oversight had relied on self-regulation, a model that proved flawed.
Fortunately, many stakeholders, including Sarasin & Partners, spoke up to raise the alarm. Investors, led by the CFA Institute and the International Corporate Governance Network (ICGN), made
clear the potential damage to investor trust.
In the end, the Senate Parliamentarian ruled that the proposal to abolish the PCAOB could not proceed due to something known as the Byrd Rule. Put simply, the Rule prohibits major policy changes being dressed up as budgetary decisions to bypass proper congressional scrutiny. The abolition of the PCAOB counts as a major policy move that would require a separate process, with a higher level of congressional support than the simple majority needed for the budget to pass.
What are the implications?
A weaker PCAOB poses several risks:
Loss of independence. The PCAOB was deliberately designed to be independent of both the auditing profession and political influence, while remaining under SEC oversight. Any governance changes that reduce its autonomy or compromise its ability to act decisively on audit failures would be a concern.
No cost savings. The Board is funded by levies on listed companies, not taxpayers. Therefore, cuts to its activities would not directly save the taxpayer any money. To argue that companies
and their shareholders would ‘save’ money, moreover, misses the core benefits that the PCAOB brings to investors through greater protection against mis-statements or fraud.
Reduced enforcement. If the PCAOB were to face more restricted funding, we would expect fewer and less rigorous inspections. While some complain that PCAOB reviews are onerous, they
are vital for accountability. The latest audit quality reports show high rates of deficiencies; this is not the time to relax oversight.
Weaker oversight of foreign auditors. The PCAOB doesn’t just check domestic listed business audits. It has secured crucial agreements allowing it to inspect overseas audit firms, including in China. These arrangements took years to negotiate and could fall apart without the necessary staff and resources, leaving a dangerous enforcement gap.
Loss of expertise. PCAOB staff are key to its success. A weaker more politicised regulator with fewer resources and potentially lower pay levels could result in a loss of vital expertise.
Audit quality has improved since the PCAOB’s creation. As Dan Goelzer, a founding board member, recently stated: “Restatement rates have dropped substantially since the early 2000s… firms devote tremendously more resources and leadership thought to audit quality than they did before the PCAOB and the risk of inspections.”
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