SEC Audit Oversight Push Renews Questions for Enron-Era Watchdog

The SEC’s plan to dedicate more staff to investigate audit lapses has triggered fresh uncertainty over the role of the industry’s embattled watchdog.

Through a series of job postings and a few public statements, the US Securities and Exchange Commission has promised to create a specialized unit to put extra power behind its auditor oversight, targeting what one official described as “fundamental” failures.

Investor advocates said they fear the move could hollow out the enforcement capabilities of the Public Company Accounting Oversight Board, which Congress stood up to ensure investors could rely on corporate financial reporting after the collapse of Enron Corp. and WorldCom Inc. in the early 2000s.

Accountants’ defense lawyers, meanwhile, are watching for clues about the full scope of the specialty unit’s work and what new risks the shifting accountability landscape might introduce for auditors.

“This is a shadow policy change,” said Corey Frayer, director of investor protection for the nonprofit Consumer Federation of America. “Congress mandated the existence of the PCAOB. It has a function and it is not the right of the chair to undermine those functions or to replace those functions whole cloth,” he said, in reference to the head of the SEC.

The infusion of SEC resources for auditor oversight contrasts with the commission’s track record so far under the Trump administration: an 18% cut in enforcement staffing last year and a sharp slowdown in enforcement actions. The PCAOB and SEC combined brought one-third fewer audit cases last year, according to data from the Brattle Group.

The audit board, which Congress attempted to dismantle last year, slashed its 2026 enforcement budget by 15% and is searching for a new director to run its investigations arm. It faces lawsuits challenging its enforcement authority.

“The establishment of this group at the SEC does not change the PCAOB’s statutory mandate,” the board said in response to questions about how the specialized unit would alter its own enforcement docket.

The SEC declined to comment. It has previously said that the new enforcement unit would “crack down on bad actors in the profession.”

Regulatory Overlap

For more than two decades, the SEC and PCAOB have shared the job of holding auditors to task for their work vetting the balance sheets and revenues of publicly traded companies collectively worth trillions.

The SEC typically brings marquee cases like its $100 million settlement with Ernst & Young LLP in 2022 related to staff cheating on internal training. The PCAOB later hit KPMG’s affiliate in the Netherlands with a $25 million penalty for similar exam cheating.

That overlapping authority has long been a source of frustration for auditors and critics of the PCAOB. In March, SEC Chief Accountant Kurt Hohl called for the two regulators to address such duplication.

The official steering the commission’s new unit, Ryan Wolfe, has said in public remarks that there is room for both regulators to pursue cases.

The new SEC group will focus on cases where auditors are “incompetent” or those involving clear violations of professional standards, such as skipping a required step that another partner outside of the audit team reviews the underlying work, he said during a Practising Law Institute event in March.

There are, however, some key differences between the two regulators—among them that SEC cases become public much earlier in the process. The commission also can pursue cases in federal court. That tactic has grown more common after a Supreme Court ruling limited the use of the SEC’s in-house judges.

Under the PCAOB, cases can linger out of sight from investors for years before the misconduct becomes public.

The board relies on an in-house hearing officer to oversee disciplinary cases—a role that has been vacant since July, preventing the board from litigating its own cases.

In response to questions about the hearing officer, a PCAOB spokesperson pointed to its careers page, which didn’t list an opening for the role.

Auditors and the lawyers who represent them hope to gain more clarity about the new audit unit’s scope once the commission’s new enforcement director starts and the team is fully staffed with attorneys and accountants.

“The expectation is that they will lead the charge on auditor enforcement,” said Michael Plotnick, a partner with King & Spalding LLP and a former chief trial counsel for the PCAOB.

Still, he said he expects the audit board will continue to bring cases in certain areas. Agreements the board has struck with regulators around the world give the PCAOB unique access to individual auditors and their work papers, for example.

Violations stemming from the audit board’s inspections and routine reporting requirements might also remain the purview of the PCAOB, Plotnick said.

Gatekeepers’ Role

One advantage of the stand-alone audit regulator is the expertise of its accountants and lawyers, who bring a deep understanding how audits are conducted and the standards that guide them.

But such knowledge is needed at the SEC too, said Sandra Hanna, a partner with Steptoe LLP who leads the firm’s SEC enforcement practice.

The commission’s newly minted group could be a powerful tool to pursue auditors who pump out subpar work for clients, much like BF Borgers, once the auditor to President Donald Trump’s social media company. In 2024, the SEC permanently suspended the firm, accusing its lone partner of rubber-stamping audits for hundreds of clients.

Shutting down such auditors is an effective tool to block fraudulent stocks from accessing the public markets. “It’s entirely consistent with this administration’s priorities to focus on gatekeepers,” Hanna said.

Audit quality moves in tandem with oversight—when regulation is peeled back, that’s when problems surface, said Rob Pawlewicz, assistant accounting professor at the University of Richmond.

“It’s not so much who does the regulating that matters, it’s how much,” he said.