US Audit Watchdog Enters Uncertain New Era as SEC Changes Hands

The US board charged with keeping watch over the quality of US audits is poised for a radical change in the political pendulum.

Erica Williams has been an aggressive enforcer of the audit industry since she was tapped by the Biden administration to take the helm of the Public Company Accounting Oversight Board nearly three years ago and has defiantly touted her record holding auditors to a higher bar.

Paul Atkins, picked by the incoming Trump administration to run the Securities and Exchange Commission that oversees the PCAOB, has a track record indicating he’d take a much lighter touch to regulation. That experience foreshadows less focus on imposing new auditor restrictions or record fines and he could bring heightened scrutiny of the budget and operations of the audit board itself.

“What is measured as success will be different under an Atkins commission,” said Jackson Johnson, president of Johnson Global Advisory, which helps accounting firms comply with US audit rules. “He still has that investor protection mindset but not necessarily through the use of increasing enforcement tools.”

The SEC has the authority to appoint members to the Enron-era regulator and approve its rules and funding. And Atkins is expected to replace Williams with his own preferred chair.

Williams, however, has given no indication she is ready to leave, in contrast to outgoing SEC Chair Gary Gensler, and any leadership changes may take months.

“I love this job and am committed to continuing to serve investors as long as I’m blessed with the opportunity to serve alongside the dedicated and talented staff of the PCAOB,” Williams said in a statement Thursday reprising remarks she made earlier this week.

Under Atkins, both the SEC and PCAOB could narrow the reach of its enforcement actions to cases involving serious misconduct. And the board’s brisk pace of rule-writing—far outstripping board action during the first Trump administration—is likely to slow down.

Atkins has advocated for keeping the US audit watchdog on a tight leash, keeping its funding and rule-writing in check. He voted against that regulator’s budget in 2007, arguing that the PCAOB chair shouldn’t earn more than all five members of the SEC combined.

But he also took the industry to task for what he called “deep failings” in its ability to self-regulate.

Atkins didn’t immediately respond to a request for comment.

Spotlight on Audit Misdeeds

Audit quality has improved since the PCAOB was created after the collapse of WorldCom Inc. and Enron Corp. more than two decades ago. But headline-grabbing frauds still spark questions about the vigilance of auditors.

Last week, Macy’s Inc. announced that an employee hid more than $100 million in delivery expenses. Super Micro Computer Inc. shares plunged after its auditor quit in October over concerns about management’s integrity.

“There’s still some quality challenges that still need to be job one regardless of who is in the SEC’s chair, regardless of who’s in the White House,” said Kecia Williams Smith, associate accounting professor at North Carolina A&T State University. “The protection of the investors is evergreen. It doesn’t change with administrations.”

Ron Hauben, former general counsel for Ernst & Young LLP and a partner with McDermott Will & Emery LLP, expects the SEC and PCAOB to take a more balanced approached to enforcement and rule-writing under new leadership. But auditors would benefit if there remains some consistency in the board’s membership, he said.

Wholesale changes create a “high level of uncertainty and lack of predictability. That makes it very difficult for regulated entities to be able to predict how they should be operating,” Hauben said.

Industry and audit watchers are bracing for the potential third overhaul of the board’s leadership since 2017. SEC chairs under the first Trump administration and the current Biden administration have replaced the chair and most members of the board, creating an abrupt pivot in the board’s priorities and approach.

Jackson, the audit firm consultant, said he doesn’t expect to see any immediate changes in the PCAOB leadership. Any replacements, either the chair or individual board members, could take as much as a year as Atkins would prioritize naming his SEC division directors, he said.

The board congratulated Atkins on his nomination and said it would work closely with the incoming SEC leadership.