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PCAOB's Shutdown Faces Challenge in Senate

Despite GOP lawmakers' proposal to shut down the PCAOB and fold it into the SEC, the Senate parliamentarian determined that including the provision in a larger tax bill is against budget reconciliation rules, according to The Wall Street Journal.

As a response, PCAOB Chair Erica Williams said on Jun. 20 that “this is good news for millions of Americans whose retirement savings and investments would be put at risk by eliminating the PCAOB."

Williams and many international audit regulators have asked the lawmakers to re-examine the plan, The Wall Street Journal said.

On Jun. 19, the Senate parliamentarian ruled out PCAOB's elimination as well as several other provisions in South Carolina Senate Banking Chair Tim Scott’s proposed addition to the "big, beautiful bill," Senate Budget Committee ranking member Jeff Merkley’s office said.

Ruled ineligible as well are the proposed placing of a funding cap on the Consumer Financial Protection Bureau, reducing Federal Reserve staff's pay and lowering the Office of Financial Research's funding.

According to the Wall Street Journal, the parliamentarian stated that these provisions are against the Senate’s Byrd Rule, which is a law named after the late West Virginia Democratic Sen. Robert Byrd. This stops lawmakers from utilizing the special fast-track budget reconciliation process in order to advance policies that have fiscal effects that are incidental to their larger goals. The move would mean that 60 senators would have to vote to waive the rule to keep the provisions. Otherwise, Senate Republicans will have to take them out from the package or modify them to be compliant.

Those opposing the PCAOB elimination stated it would make performing oversight over auditing firms less effective while reducing financial reporting accuracy and reliability. They are concerned the SEC could not duplicate the PCAOB’s expertise and infrastructure given the lack of resources and its other priorities.

Congress established the PCAOB in 2002 to enhance financial oversight after the accounting scandals involving Enron and WorldCom.

In May, the Republican-led House passed the larger tax bill that contained the provision to shut down PCAOB. The Senate has been creating its version of the bill with a goal to vote on it potentially by this week. That proposed version would also take out the PCAOB. However, it would not allow the SEC to increase fees to fund its expanded duties, The Wall Street Journal stated.

The PCAOB, with a roughly $400 million budget in 2025, is financed by fees paid by public firms and broker-dealers. Previously, the SEC had asked to add $100 million to its fiscal 2026 budget if it were to be required to take on the PCAOB’s work, SEC Chair Paul Atkins said at a House hearing in May, adding he would likely seek additional funds. 

In response to the parliamentarian's determination, Scott said he stays committed to advancing legislation that eliminates U.S. government waste and redundancy, The Wall Street Journal reported.

Recently, Senate Banking Committee Republicans said that folding the PCAOB into the SEC would save a projected $771 million in a decade.

If the provision does not make it into the final tax bill, the PCAOB will most probably not be exempt from undergoing big changes. Lawmakers can still reintroduce the proposal going forward. Additionally, the SEC, with longtime PCAOB opposer Paul Atkins as chair, could move to take out the board members like it has in recent years.

Meanwhile, Senators and the parliamentarian are still talking about the bill's other provisions and whether they are in compliance with the Byrd Rule, The Wall Street Journal reported.