US Audit Board Autonomy Under Scrutiny as New Leaders Take Seats

The US audit board was designed to be an independent watchdog, putting distance between the regulator, the whims of Washington politics, and the influence of the largest accounting firms that dominate the industry.

Investors and industry watchers warn that potential conflicts of interest could test the Public Company Accounting Oversight Board’s autonomy and effectiveness as a regulator as a retired Big Four audit partner and two Trump administration officials take the helm.

“It’s important to investors that PCAOB board members are independent not just in fact, or regulation, but also in appearance,” said Sandra Peters, senior head of global advocacy for the CFA Institute, a trade group for investment analysts. She added that it is “central to their objectivity and credibility.”

The US audit board has undergone three leadership overhauls over the past decade. The last two triggered sharp swings in policy, sparking calls for reforms in part to insulate the body from political turmoil.

It was never meant to be that way. Congress created the nonprofit board to restore investor confidence in corporate accounting after two of Wall Street’s brightest stars of the early 2000s—Enron Corp. and WorldCom Inc.—were felled by fraud. It gave the board authority to write tougher rules, and then enforce them.

But a 2010 Supreme Court ruling gave the Securities and Exchange Commission, which oversees the PCAOB, the ability to replace the board’s five members without cause. Successive SEC chairs since the first Trump administration have done just that, remaking not only the board’s composition but introducing sharply differing views on regulation.

In his first statement as chair, retired Ernst & Young audit partner Demetrios Logothetis called the board’s independent oversight a “critical pillar” of investor confidence. He is the first audit partner and second EY alumnus to lead the PCAOB.

The board declined to comment about the status of its independence and whether Logothetis would recuse himself from matters involving EY.

The board’s new members and chair “bring deep experience and fresh perspectives on how to best drive improvements in audit quality,” the SEC said in a statement. SEC Chair Paul Atkins has committed to “robust” oversight of the board and has directed it to curb “unnecessarily complex regulations” and focus on the mission Congress spelled out for it, the statement said.

An Auditor as Chair

Logothetis spent 40 years with EY, where he audited Coca-Cola Co., Fiat Chrysler Automobiles, and Whirlpool Corp., among others before retiring in 2019. He previously held roles including vice-chair of global accounting and Midwest managing partner.

Congress anticipated that a CPA could one day serve as chair, but lawmakers set in place a cooling off period. Any CPA must have stopped working as an accountant at least five years prior to leading the PCAOB.

Lawyers historically have dominated the board’s leadership ranks and Logothetis’ experience leading audits for major American companies is welcomed by some in the industry.

“He knows exactly what auditing is about and how challenging it can be,” said Matthew Rogers, president of Bridgehaven Consulting, who helps auditors navigate PCAOB investigations.

Still, for some, the political ties of new board member Mark Calabria, who held key roles at the White House Office of Management and Budget and the Consumer Financial Protection Bureau, and incoming member Kyle Hauptman, chair of the National Credit Union Administration, pose a greater risk than any links to audit firms.

If they follow Project 2025, the conservative policy playbook, they could try to hobble the board from delivering on its job of ensuring audits have value and substance, said Tim Gustafson, principal of Accounting 2 Intelligence and a former audit partner and PCAOB employee.

Calabria’s former boss, OMB Director Ross Vought, was among the principal drafters of Project 2025, which calls to eliminate the PCAOB and other similar entities the SEC oversees.

“The biggest risk is we now have a board that’s very ideological,” Gustafson said. “We wanted the board to operate somewhat insulated from politics and it seems that insulation is being eroded.”

The repeated policy swings have hampered the board’s ability to update its aging rulebook. The board has delayed the roll out of overhauled governance rules and two other projects were shelved in the wake of the 2024 presidential election.

An Independent Watchdog

Like any regulator, the board’s autonomy was meant to shield it from undue influence from the industry it regulates as it writes audit rules and metes out discipline for everything from minor missteps to major errors in audits.

A board that is too cozy with auditors could bring fewer enforcement cases or relax its scrutiny of auditors’ work. That could ultimately weaken the protection audits are meant to provide to investors.

The board’s own ethics policy, however, requires members to protect the regulator’s independence and objectivity.

The PCAOB’s independence also provides a buffer so its members and employees, many of whom are based in Washington, can focus on their narrow mission even as political administrations come and go.

Financial regulators reflect the policies of the current administration—that’s not unique to the PCAOB, said Rob Hoff, a partner with Wiggin and Dana LLP.

“I don’t believe that the mere appointment of somebody who spent decades at the Big Four or the appointment of people who previously were affiliated with the administration is an automatic sign that there is a crack in the foundation,” he said.

The board’s members, however, are political appointees and the watchdog’s politicization “has been happening for a long time,” said Mikhail Pevzner, an accounting professor at the University of Baltimore.

Scandals and turnover, however, have destabilized the board, limiting its acceptance as the important institution that it is, Pevzner said.

“The deeper problem with PCAOB is not who runs it,” he said.