This piece is part of a collaboration with industry insiders examining what's broken in auditing: A series of opinion pieces exploring weaknesses in the current business model, inherent conflicts and competing agendas.
Long before the Trump administration took office, rumors were flying about reigning in the PCAOB and absorbing it into the SEC. This began as early as 2023 when a group of think tanks published Project 2025 (also called the 2025 Presidential Transition Project). As it relates to accounting and auditing regulation, there were several bold proposals:
- Abolish or Reorganize Existing Audit Oversight Bodies (i.e., the PCAOB)
- Merge or Centralize Regulatory Functions Under the SEC
- Reduce Regulatory Burden and Reporting Requirements
- Limit Enforcement and Scope of Regulatory Organizations
When SEC Chairman Paul Atkins took office, the message was jarringly simple: “Pencils down, no new rules, and back to the basics.” Atkins has been drafted to facilitate capital formation by cutting red tape and reducing costs. The blueprints to limit and centralize audit oversight are in proposed legislation before Congress titled the “Streamlining Public Company Accounting Oversight Act”
A Twist of irony - Trump unfazed by sham audits disrupting Truth Social IPO
Trump Media & Technology Group (TMTG, aka “Truth Social”) suffered the indignity of learning in May 2024 (just 40 days after its IPO) that its auditor, BF Borgers, had been permanently barred by the SEC from conducting public company audits. The SEC’s disciplinary order was scathing and called out BF Borgers as a “sham audit mill.” In short order, TMTG had to fire BF Borgers and hire another auditor to re-audit the 2022 and 2023 TMTG financial statements.
BF Borgers was in the gun sights of the PCAOB before the SEC went in for the kill. One would expect that Trump would come away from this experience with a heightened respect for the work of the PCAOB to protect the interests of investors. To the contrary, Trump seems to have been unfazed by TMTG’s association with a “sham audit mill”.
The administration’s actions signal a disappointing lack of motivation for preserving the integrity of an important watchdog like the PCAOB. The PCAOB was born out of the ashes of Enron and the failings of Arthur Andersen. It now finds itself being managed into decline by an agenda that prioritizes capital formation over the very investor protection it is meant to uphold.
Why a strong audit regulator is essential
The auditing profession is far from being out of the woods. There are systemic issues within the auditing profession that pose an ongoing threat to audit quality and warrant a strong regulator:
- The auditor is retained and compensated by the entity under audit. This creates a conflict of interest. The audit partner’s “book of business” is an important element of each audit partner’s job security. There is a heightened risk that auditors may tread lightly on audit and accounting issues to retain the client when they should demonstrate the fortitude to do the right thing.
- The inability of the audit firms to differentiate themselves has resulted in the ill-effects of commodity pricing. To achieve a suitable level of profit per partner in a commodity pricing environment, the audit firms have resorted to:
- squeezing their professionals for productivity (meaning long hours and the loss of work-life balance that can undermine professional skepticism),
- assigning important tasks to less experienced (and less costly) audit staff,
- applying downward pressure on entry level salaries which in turn, undermines the hiring and retention of professional staff, and
- outsourcing portions of the audit to lower-cost offshore service centers.
- The large audit firm staffing model is a mismatch with the complexity auditors are expected to master. Firms operate with a pyramid model, meaning there is a high ratio of staff and managers per partner. Brutal workloads drive high turnover which cause the frontline to be perpetually manned by the inexperienced. The constant atrophy of year-over-year institutional knowledge means every audit is almost a fresh exercise in learning-on-the-job at the client’s expense. If we were to design the audit firm staffing model from scratch, the desired model would look nothing like the staffing model that exists today.
- Tight deadlines create time pressures that undermine professional skepticism. There is a heightened risk that partners and managers may find themselves in “catch-up” mode, meaning they are behind where they should be in their review of the audit work papers. This can result in important issues being missed or dealt with under the stress of looming deadlines which can undermine professional skepticism and auditor judgment. This isn’t just a logistics headache; it presents a chronic risk of audit failure. This is how important issues get missed. In their 2024 report to the nations, the Association of Certified Fraud Examiners attributed only 3% of frauds as being discovered from financial statement audits.
There are also external risks to investors that require regulators and the auditors to be at the top of their game. These external risks include stock market valuations at or near all-time highs, an immature regulatory environment for crypto currencies that is still developing, the deployment of AI in ways that may pose unforeseen risks and challenges, and a volatile geo-political landscape, to name a few.
Some PCAOB wounds have been self-inflicted
Excessive Focus on Internal Controls over Financial Reporting
The PCAOB has drawn the ire of public companies and their auditors for being excessively focused on internal controls over financial reporting (ICFR) while paying less attention to whether the amounts reported in the financial statements were accurate and complied with GAAP.
Using PCAOB Big Four US inspection reports from 2012 through 2024, I determined that the lone internal control standard accounted for 49% of all audit standard deficiency citations while the other 51% of the citations drew from ten to twelve other PCAOB standards that were not directly related solely to internal controls. I also tabulated restatements arising from Big Four US PCAOB inspections and noted that they were in sharp decline from a peak during the 2012 to 2014 period through to 2024.
First and foremost, investors want to know whether the reported results are accurate. Many material weaknesses in internal controls were often identified only after a financial statement restatement occurred. Few financial statement restatements have been identified as the result of first identifying internal control deficiencies.
An academic study “PCAOB Inspections: Public Accounting Firms on Trial” highlights a shift in the trenches. Respondents collectively perceive that audit quality has improved as a result of inspections and, in fact, partners report that their teams - particularly those below the manager level - are becoming experts in the bureaucracy of auditing at the direct expense of accounting mastery. The focus has shifted from GAAP analysis, like complex revenue recognition, to an obsession with documentation and internal controls. Are we minting world-class auditors who have forgotten how to be accountants?
This isn’t just academic theory, it’s a reality being voiced by the Big Four. One partner at a top-tier firm recently recounted his experience to me: A three-week marathon where a five-member PCAOB inspection team dissected a highly complex audit.
"Not once did they ask an accounting question," the partner said. "Everything was about internal controls."
Another partner at a mid-tier firm echoed the sentiment, noting that the inspectors’ focus has become almost exclusively myopic toward ICFR.
The implication is clear: The PCAOB isn't checking if the numbers are right - they’re checking if the boxes are checked. By prioritizing the process of the audit over the subject of the accounting, the regulator may be creating a generation of auditors who can navigate a checklist but can't spot a reporting error in plain sight.
Shifting skill sets at the PCAOB
The large audit firms are equipped to deal with the complexities of GAAP. The PCAOB is less. One former colleague observed, “Going up against the largest audit firms on a complex technical matter was a bit like bringing a knife to a gun fight.”
When Jim Doty became Chairman of the PCAOB in 2011, his rallying cry to the Inspection Division was to “Be bold, fearless, and feared.” That was inspiring. However, over time, that message faded. As the organization matured, it lost its cadre of retired audit partners who were there from the beginning. It also eliminated a retired partner seasonal program that elevated the PCAOB’s technical skill level as it related to GAAP compliance. ICFR findings became the low hanging fruit.
Large fines for the same old findings
Former PCAOB Chair Erica Williams sought to improve audit firm compliance by assessing large penalties that many saw as disproportionate and only served to drive good firms and good people out of the profession. My view is that the PCAOB didn’t need bigger fines, it needed better findings.
Effects of this turbulence
Both the SEC and the PCAOB have experienced a talent drain.
Headcount at the SEC has been affected by federal workforce reduction mandates, some of which resulted from voluntary buyouts and retirement incentives designed to encourage departures. Staff shortages and the government shutdown last fall have put the SEC behind in its review of new filings. By mid-December 2025, the SEC’s Division of Corporation Finance had a backlog of about 500 filings. Lower staffing levels in the SEC’s Enforcement Division also signal a decline in enforcement activity.
At the PCAOB, the prospect of being folded into the SEC signaled to PCAOB employees that they might no longer enjoy their premium pay scale over government salaries. This prompted some departures from the PCAOB. These conditions have also likely made it difficult for the PCAOB to hire new employees. The SEC first sought to identify new board members for the PCAOB in July 2025. As of the date of this writing, the PCAOB has yet to announce any new PCAOB board members.
In my next article, I will share my observations about regulatory capture at the PCAOB.
