By Taehun Kim | Spring 2026

The Public Company Accounting Oversight Board
(PCAOB), created by the Sarbanes-Oxley Act of 2002
(SOX), is an organization that regulates audits of public
companies and brokers and dealers registered with the
Securities and Exchange Commission (SEC). Their goal
is to oversee the auditing profession and the auditing
standards, and their activities contribute to the
preparation of informative, independent, and accurate
financial statements that support confidence in U.S.
financial markets, furthering the public interest.

However, there is ongoing public discussion and policy
proposals to dismantle the PCAOB Congressman Bill
Huizenga first introduced the Streamlining Public
Company Oversight Act first in October 2021 and later
in May 2024. It seeks to remove the PCAOB and replace
it with the Office of Public Accounting Oversight under
the SEC. This was later incorporated into H.R. 1, the
One Big Beautiful Bill Act (OBBBA) of 2025, specifically
in Section 30005 of the Senate reconciliation bill. While
this section was ultimately removed from the bill before
its passage, the tension over the PCAOB’s existence
persists.

If the PCAOB is serving its intended purpose, why would
considerations such as these be raised? What could be the
potential consequences to the economy of removing the
PCAOB? This article examines the following: how the
PCAOB came to be, the reasons for suggestions to
dismantle it on administrative and fiscal grounds, and the
economic risks involved should the PCAOB ultimately be
removed.

How did the PCAOB come to be?

The PCAOB was created to address shortcomings in
audits in the early 2000s that failed to detect or allow
material financial reporting misconduct. One of such
cases was that of the Enron Corporation. The
bankruptcy of Enron Corporation in 2001, an energy,
commodities, and service company, was the single largest
bankruptcy reorganization in U.S. history at the time.

The bankruptcy was a product of accounting
discrepancies exposed by journalists and whistleblowers,
leading to a formal SEC investigation that revealed a
series of financial reporting misstatements at the energy
company. Leadership at Enron Corporation abused the
mark-to-market accounting method, booking potential
future profits before they were realized, and also
established multiple shell companies as Special Purpose
Entities (SPEs) to cover up massive debts held by the
company, to name a few. What upset the public even
more, however, was the involvement of Arthur Andersen,
one of the ‘Big Five’ accounting firms. Arthur Andersen
served not only as an external auditor to Enron, but also
offered an extensive consulting service, and had
overlooked and approved Enron’s accounting
maneuvers. Additionally, the firm was convicted of
obstruction of justice when it was discovered that they
had shredded documents in relation to the Enron audit
once the investigation began. 25,000 Enron employees
alone lost their jobs, as well as $2 billion in pension
savings and $1.2 billion in retirement funds, as a result of
the scandal.

The passage of SOX and the establishment of the
PCAOB were a promise made to the public to hold
public companies and their auditors accountable and to
uphold audit integrity. In short, this legislation was to
restore credibility in U.S. financial markets.

Administrative Arguments for Dismantling the PCAOB

If the PCAOB was created to uphold audit integrity and
continues to serve that purpose, why have proposals to
dismantle it emerged? One of the primary arguments
raised by the proponents concerns administrative
efficiency and its institutional structure.

When introducing the original bill, Congressman
Huizenga suggested that the PCAOB is not truly an
independent entity, but that it operates under the
oversight of the SEC. From this perspective,
incorporating the board’s responsibility directly to the
SEC through the proposed Office of Public Accounting
Oversight could streamline government operations and
improve administrative efficiency.

The debate over PCAOB’s independence intensified
following the SEC’s 2021 decision to remove PCAOB
Chairman William Duhnke and solicit candidates for all
five board positions. Critics argued that the PCAOB was
subject to political influence, raising questions about its
function as an independent oversight body.

However, the legal framework established under the
Sarbanes-Oxley Act complicates the claim that the
PCAOB lacks independence. Title I of SOX explicitly
defines the organization of the board, as it states, in
Section 101(b), “the Board shall not be an agency or
establishment of the United States Government,” instead
designating it as a nonprofit corporation. This provision
distinguishes the PCAOB from traditional federal
government agencies.

Additional provisions in the Act reinforce this
institutional separation. Section 101(e)(3) requires that
each board member serves full time and prohibits
members from receiving compensation from any outside
entities. Section 101(f) authorizes the board to appoint
its own employees, accountants, and attorneys as
necessary to carry out its responsibilities. Furthermore,
Section 103 grants the PCAOB the authority to establish
auditing, quality control, and ethics standards for
registered public accounting firms, as well as to adopt
other standards.

While the SEC retains supervisory authority, such as
approving PCAOB standards and overseeing its
activities, this relationship does not necessarily imply
duplication of functions between the two entities. In both
its legal structure and its operational responsibilities, the
PCAOB functions as an independent, specialized
oversight body in all material aspects, dedicated
exclusively to audit regulation for public companies. As
such, while the dual-layer structure of the PCAOB and
the SEC may raise legitimate concerns regarding
administrative efficiency, it is not clear that eliminating
the PCAOB would meaningfully improve overall
efficiency, particularly given the specialized oversight the
board provides.

Fiscal Arguments for Dismantling the PCAOB

In addition to concerns regarding institutional
independence, proponents of dismantling the PCAOB
have also raised fiscal arguments. When introducing the
Streamlining the Public Company Accounting Oversight
Act, Congressman Huizenga highlighted the
compensation of PCAOB board members, noting that
each of the five board members received approximately
$550,000 in 2021, an amount that exceeded that of the
SEC Chairman. Supporters of Section 30005 of the
original draft of the OBBBA further argued that
eliminating the board could generate approximately $771
million in budget savings between 2027 and 2034.

However, the PCAOB’s legal framework and funding
structure complicate this claim. Unlike most federal
agencies, the PCAOB does not receive funding through
annual congressional appropriations. Instead, Section
109 of the Sarbanes-Oxley Act specifies that the board’s
operations are financed through annual accounting fees
collected on publicly listed corporations and licensed
broker-dealers. The statute further clarifies that these
funds “shall not be considered public monies of the
United States.” As a result, the PCAOB’s operating
budget, which is estimated to be $362 million in 2026, is
not funded by federal tax revenue.

The estimated savings cited in support of Section 30005
are also subject to dispute. The Congressional Budget
Office (CBO) derived the $771 million estimate using the
’25 percent rule,’ which approximates the indirect fiscal
effects when certain direct fees are removed. Under this
assumption, the CBO estimated that corporations would
retain the funds previously paid to the PCAOB, thereby
increasing the tax revenue collected. However, the CBO
also acknowledged that if the board’s responsibilities
were transferred to the SEC, the Commission would
likely impose a fee of similar magnitude to finance those
functions. In practice, this would largely offset the
projected savings.

Further complicating the fiscal argument, the SEC
Chairman Paul Atkins stated in his 2025 testimony that
the SEC could potentially reallocate approximately $100
million from its appropriated budget to support the
transfer of the PCAOB functions.

Taken together, these considerations suggest that
dismantling the PCAOB would not necessarily produce
meaningful budget savings and could even increase
administrative costs during the transition.

This argument has ultimately affected the legislative
outcome. The Senate Parliamentarian ruled that the
provision failed to satisfy the Byrd rule for reconciliation
legislation- a procedural rule that limits reconciliation
bills to provisions with direct budgetary impact. Because
the projected savings from eliminating the PCAOB were
indirect and depended on assumptions about tax revenue
effects, the provision did not qualify for this rule and was
removed from the final bill. Nevertheless, the fiscal
debate remains relevant to understanding the broader
policy discussion surrounding the future of the PCAOB.

Economic Risks Exist for Removing the PCAOB

The previous sections examined the motivations behind
recent discussions of dismantling the PCAOB, focusing
on both administrative and fiscal concerns. The PCAOB,
however, was not created as a typical administrative
body, but rather as an independent and self-sustained
institution designed to strengthen the credibility of
financial reporting within the U.S. capital markets.

Eliminating such a mechanism could therefore carry
important economic consequences. The weakened audit
oversight in its absence sparks concerns about market
transparency and investor confidence, inviting several
potential risks to the economy. This article focuses on
two potential risks in particular: the weakening of crossborder
audit oversight and the broader implications for
trust in financial reporting within U.S. capital markets.

Economic Risk I: Weakening of Global Audit Oversight

One common misconception regarding the PCAOB’s
authority is that the board’s jurisdiction is limited to the
borders of the United States. In reality, this is not the
case. From its inception, the board exercised oversight
authority over certain public entities. Section 106 of the
Sarbanes-Oxley Act established the foundation for the
board’s authority over foreign public accounting firms
that issue audit reports for companies listed on U.S.
capital markets.

The board’s authority to oversee foreign entities
expanded significantly with the passage of the Holding
Foreign Companies Accountable Act (HFCAA) in 2020,
a law passed with unanimous support from both the
House and Senate. As an amendment to the original
SOX framework, the HFCAA states that if the PCAOB
is prevented from conducting audit inspections of foreign
firms whose securities trade in the U.S. markets for three
consecutive years, those companies will be prohibited
from trading and ultimately delisted from U.S.
exchanges.

The HFCAA was enacted in response to maneuvers
observed among multiple foreign firms, particularly
Chinese companies. One such practice was commonly
referred to as “going dark,” in which a firm that
previously raised capital through the U.S. market ceased
its compliance with U.S. regulatory requirements, such as
withholding requested information and halting the
release of required quarterly and annual reports. Because
these firms and their management were located overseas,
where local authorities did not recognize the PCAOB’s
authority, the companies’ stock value collapsed, and
many investors were unable to recover their investments.

This situation highlights a key economic risk associated
with dismantling the PCAOB. Without the board’s
oversight, protections for the U.S. equity market and its
investors would likely weaken. Right after the SEC
started publishing the list of entities that the PCAOB
was unable to audit following HFCAA, on April 2nd,
2022, the China Securities Regulatory Commission
announced a proposed adjustment that would allow
PCAOB inspectors to conduct on-site inspections in
mainland China. While the development does not
necessarily establish causality, it indicates that credible
enforcement mechanisms, such as the threat of delisting,
may serve as an effective tool in the regulatory
negotiations process.

In addition, a group of accounting scholars and
practitioners has argued in their letters to Congress that
the PCAOB’s status as an independent nonprofit
corporation was essential to facilitate cooperation of
foreign regulators across 58 non-U.S. jurisdictions,
including major economies like Russia and China.

Because the board is not formally structured as a
government agency, it may be perceived as a more neutral
supervisory body, which can reduce political resistance in
cross-border audit negotiations.

If the PCAOB were dismantled and replaced with a
government subsidiary, such as the proposed Office of
Public Accounting Oversight within the SEC, many of
these regulatory challenges could reemerge. Reliable
financial reporting functions as a mechanism to reduce
information asymmetry between firms and investors. If
foreign entities fail to recognize the authority of the
replacement oversight body, the weakened audit
inspections as a result would increase uncertainty about
the reliability of the disclosed financial information.
Under such conditions, financial markets could face
circumstances similar to the “market for lemons”
described by George Akerlof. As investors cannot
distinguish the quality of information within the market,
adverse selection may occur, eroding investor confidence
and diminishing financial value in the process.

For these reasons, dismantling the PCAOB could weaken
the international framework of audit oversight that
currently supports the transparency of the U.S. markets.

Economic Risk II: Erosion of Trust in Financial Reporting

Beyond the issues concerning global audit oversight, the
potential dismantling of the PCAOB also raises concerns
regarding investor confidence in the credibility of
financial reporting within U.S. capital markets. Modern
financial markets depend heavily on the availability of
reliable information; that is, investors make decisions
based on publicly disclosed financial statements, the
credibility of which relies in large part on the integrity of
the auditing process. Independent oversight of auditors
serves to reduce the information asymmetry between
firms and investors, allowing capital to be allocated more
efficiently and fairly across the market.

The establishment of the PCAOB following the passage
of the Sarbanes-Oxley Act was in part a response to the
collapse of investor confidence in the early 2000s.
Including the Enron and Arthur Andersen incidents
introduced earlier, and other cases such as WorldCom,
the market’s vulnerability to fraud shook investors and
the financial markets.

If a substantial misstatement in financial reporting goes
undetected for an extended period, the resulting loss of
confidence can have significant market consequences.
Stock prices can decline, and perceived market volatility
will then increase. Then widespread skepticism of the
market may reduce the investor’s willingness to lend,
increasing the cost of capital for businesses. The
regulatory framework created by SOX serves a
fundamental role not only to punish misbehavior but also
to uphold trust and reliability in the financial markets,
thereby preventing an increase in the cost of capital.

Removing or restructuring the PCAOB could
reintroduce uncertainty regarding the oversight of audit
practices. Even if the core regulatory functions were
transferred to another agency in due time, the transition
process itself could still raise concerns among market
participants regarding the continuity and independence
of audit supervision. For instance, one of the
uncertainties could result from the status quo of the
SEC’s auditing capabilities, as the SEC’s Office of the
Chief Accountant (OCA) acknowledged in 2025: the
OCA did not have any personnel with experience in
examinations or inspections of public firms. It cannot be
confidently said that the SEC would be able to hire
professionals with comparable expertise to the current
PCAOB staff, because, unlike the Board, which is a
nonprofit corporation, the SEC, being subject to
congressional budget appropriations, may be constrained
from offering comparable compensation. From an
economic perspective, such uncertainty may increase the
perceived risk associated with corporate financial
disclosures. And when investors perceive a higher level of
information asymmetry and associated risks, they are
likely to demand greater returns to compensate for the
uncertainty.

In short, removing the PCAOB may result in increased
perceived reporting risk, leading investors to require a
risk premium, which subsequently can increase
borrowing costs for firms and reduce the attractiveness
of equity financing. With firms facing higher barriers to
capital, the society’s economic growth may be slowed.
For these reasons, dismantling the PCAOB could weaken
confidence in financial reporting that currently supports
the broader functioning of the U.S. capital markets and
have consequences that extend beyond a mere change in
regulatory structure.

Conclusion

The debate surrounding the future of the PCAOB
reflects broader questions about regulatory efficiency,
institutional structure, and the appropriate scope of
governmental oversight in financial markets. The
proponents of dismantling the board have argued that its
functions need to be absorbed by the SEC to streamline
administration and potentially reduce costs. However,
these arguments often focus primarily on organizational
structures while overlooking the broader economic
function of the PCAOB within the financial system.

As this article has discussed, the removal of PCAOB
invites two primary economic risks. The first involves the
weakening of global audit oversight, especially for
foreign entities whose securities are traded in the U.S.,
endangering market transparency. The second concerns
the erosion of investor confidence in the credibility of
financial reporting, which could increase information
asymmetry, raising the cost of capital for firms operating
within the U.S., and slowing down economic growth.

Financial regulation often serves purposes that extend
beyond immediate administrative convenience.
Institutions like the PCAOB have developed expertise
and earned the trust of global regulators and market
participants over the preceding years, enough to serve as
a mechanism to sustain transparency and integrity of
financial markets. While debates over regulatory design
will likely continue, and there might yet be another claim
regarding the dismantling of the PCAOB, policymakers
must carefully examine the potential benefits against the
possible economic risks, and we, as students and future
market participants, must remain informed about such
policy changes and help maintain confidence in the U.S.
capital markets.

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Huizenga, B. (2024, May). Streamlining Public Company
Accounting Oversight Act [Press release]. U.S. House of
Representatives.
https://huizenga.house.gov/news/documentsingle.aspx?
DocumentID=401373
Public Company Accounting Oversight Board. (2002). Sarbanes-
Oxley Act of 2002.
https://pcaobus.org/About/History/Documents/PDFs/Sarbanes_Ox
ley_Act_of_2002.pdf
Public Company Accounting Oversight Board. (n.d.). PCAOB
inspections of registered non-U.S. firms.
https://pcaobus.org/oversight/international/international/pcaobinspections-
of-registered-non-u-s–firms
Akerlof, G. A. (1970). The market for “lemons”: Quality
uncertainty and the market mechanism. The Quarterly Journal of
Economics, 84(3), 488–500. https://doi.org/10.2307/1879431
Acito, A., Alberti, C., & multiple authors. (2025, June 12). Letter
regarding the proposal to dismantle the PCAOB