It feels like another stand-out moment in America’s rapidly shifting regulatory landscape.
In February, the Public Company Accounting Oversight Board(PCAOB) withdrew two high-profile rules intended to enhance transparency and oversight in audit firms. The Firm Reporting rule, which covered areas like audit fees, and the Firm and Engagement Metrics rule, addressing partner and management involvement, workload, training hours, and retention of audit personnel, were launched last November amid great fanfare.
At the time, PCAOB Chair Erica Y. Williams declared they would make PCAOB oversight “more effective” and provide investors, audit committees, and others with clear, consistent, and actionable data. These rules were then passed to the Securities and Exchange Commission (SEC) for approval.
But the change in administration, with Donald Trump’s presidency ushering in a markedly different regulatory approach and key appointments like acting SEC chair Mark Uyeda, shifted the dynamics. In January, the SEC announced it would allow more time for public comment on these separate but related rules. Then, in February, the PCAOB quietly withdrew the proposals a month before the commission was scheduled to approve or disapprove them, without explanation.
For many in the accounting sector, this withdrawal came as a relief. Smaller and mid-tier firms had long felt that PCAOB regulations added administrative burdens, making it harder to attract and retain talent.
This tension has been building since the introduction of Rule 3502 in June 2024, which expanded liability for auditors. That regulation remains in place. The American Institute of Certified Public Accountants (AICPA) warned that some small and medium-sized firms might opt out of auditing public companies altogether. With the new rules withdrawn, many firms may feel vindicated.
Critics of the PCAOB argue that its regulations, originally designed in response to major scandals like Enron, failed to keep pace with the profession’s evolution, including the growth of lucrative non-audit services. Even the PCAOB’s core function of inspecting audit work papers has faced scrutiny, with concerns that findings were not always made public. Some argue that despite over two billion dollars spent in the past decade, audit quality hasn’t significantly improved.
Notably, PCAOB critics highlight that the board’s oversight did not expose high-profile corporate frauds in the US, such as Theranos, Wells Fargo, Silicon Valley Bank, Wirecard, and FTX. Some are now calling for COSO, the Committee of Sponsoring Organizations, comprising the five major US accounting bodies, to take a larger role in audit quality oversight.
With the PCAOB’s proposed rules withdrawn, those in the audit profession advocating for a lighter-touch regulatory regime appear to have won this round. This is especially true given that related regulations, such as the SEC’s climate disclosure rule, also appear to be facing challenges. Acting SEC chair Mark Uyeda recently signalled these setbacks.
Critics might say that lobbying efforts played a role in shaping these outcomes. But the reality is that stakeholder advocacy is part of the process. Few expected the regulatory regime that emerged in response to the early 2000s scandals to be so thoroughly dismantled so quickly.
Unintended Consequences
The big question now is what these changes will mean for audit quality and trust, especially in the light of the House Tax Bill proposing to dismantle the PCAOB, lodged in June 2025. Some observers warn that a lighter-touch regulatory approach may lead to more frequent financial restatements, as previously unqualified audit reports come under scrutiny.
Auditors will also face the challenge of demonstrating the value they bring to their clients in this new environment. With advanced technology and AI increasingly taking on routine tasks, questions will arise about the level of human scrutiny and professional judgment applied.
Key issues, such as safeguarding quality, integrity, objectivity, and independence, will become even more critical. This challenge is compounded by workforce issues: too few college graduates are entering the profession just as experienced auditors retire, while the administration’s stance against DEI initiatives could further affect diversity in the pipeline.
All of this feeds concerns that the US remains vulnerable to financial fraud. Critics argue there is no good reason to roll back audit regulations; now, or ever.
So far, investors have been largely silent, perhaps fearing a backlash for speaking out in the current political climate. But what about the impact on the rest of the world?
Many believe the UK’s new audit regulator, the Audit, Reporting and Governance Authority or ARGA, could be influenced by events in the US. Some predict that pushback from the profession on regulatory burdens will gain momentum in the UK, with arguments that too many regulations make the UK less competitive compared to the US. However, investors in the UK may be more willing to speak up, unafraid of government retaliation.
There’s also a broader sense that the deregulatory stance in the US could ripple outward, influencing the UK’s pro-growth agenda. Some warn of a potential “race to the bottom” if the UK weakens its own audit regulations in response.
In a global marketplace, firms are likely to replicate US policies in their overseas operations, particularly around initiatives like DEI rollbacks. With the FCA already dropping DEI proposals, the trend may be taking hold.
In the months and years ahead, the ripple effects from America’s shift in audit regulation could be felt around the world. For audit professionals and investors alike, maintaining trust, quality, and transparency in the audit process will be more important than ever.
