Members warn that abolishing PCAOB or shifting inspections to SEC could undermine audits and U.S. investor protection

Members and witnesses at a House Financial Services subcommittee hearing sharply debated proposals in recent budget legislation that would eliminate or transfer the Public Company Accounting Oversight Board (PCAOB) to the Securities and Exchange Commission and warned of risks if PCAOB functions were dismantled or defunded.

"We should not defund the police in the streets, and we should not defund the police in the suites," Ranking Member Brad Sherman said during opening remarks, arguing that the PCAOB and other regulators are essential. Rep. Maxine Waters, ranking member of the full committee, told the chair that "the PCAOB is the crown jewel of the public company accounting oversight Board" and warned that abolishing it would remove U.S. inspections of auditors in China and other foreign jurisdictions.

John C. Coates IV, professor of law and economics and deputy dean at Harvard Law School, told members the PCAOB's inspection and standard‑setting role is difficult to replicate. "AICPA is a good organization, but it is not up to nor was it in the nineties up to the task of checking the audit standards of the biggest audit firms for most public companies," Coates said. He and other witnesses said transferring inspection authority to the SEC or delegating to self‑regulation risked losing international memoranda of understanding that the PCAOB has negotiated with foreign authorities.

Several members cited the senate parliamentarian's intervention in recent budget language. Ranking Member Sherman thanked the parliamentarian by name for striking a provision that would have defunded the PCAOB, and later witnesses warned an abrupt transfer of duties to the SEC—without dedicated funding—would be costly and disruptive.

"Abolishing the PCAOB would save no money," Coates said, adding that an unfunded transfer to the SEC could increase taxpayer costs during transition and could leave inspection regimes effectively dismantled during the shift. Members and witnesses emphasized that PCAOB inspections and the ability to inspect audits of foreign‑based firms are central to detecting fraud and supporting private enforcement actions.

Proponents of preserving the PCAOB highlighted historical context: Sarbanes‑Oxley and the PCAOB were enacted after high‑profile corporate scandals such as Enron and WorldCom, and witnesses said audit failures and conflicts of interest in the pre‑SOX era contributed to those collapses. Several members said recent proposals to alter PCAOB structure should be considered only after hearings with PCAOB and SEC officials and careful analysis of inspection authority and funding.

No formal committee action was taken on PCAOB funding during the hearing. Members requested written follow‑up from the SEC and PCAOB and suggested future hearings specifically focused on PCAOB operations and the implications of moving its functions.