The PCAOB Dodges the Bullet

As discussed in Is This the End of the PCAOB? May 2025 Update, the House Financial Services Committee included in the 2025 budget reconciliation bill a provision that would have abolished the Public Company Accounting Oversight Board and transferred its functions to the Securities and Exchange Commission.  The concurrent resolution on the budget for fiscal year 2025 (officially titled the One Big Beautiful Bill Act) passed the House of Representatives in late May.  The Senate Banking Committee subsequently announced that it also intended to include a provision eliminating the PCAOB in its budget reconciliation legislation. 

On June 19, the plan to merge the PCAOB into the SEC as part of the 2025 federal budget hit a roadblock.  The Senate Parliamentarian ruled that abolishing the PCAOB did not meet the requirements of the Byrd Rule and was not a proper subject for budget reconciliation.  Under the Senate’s rules, budget reconciliation bills are not subject to filibuster and can pass by a simple majority vote.  Other types of legislation require 60 votes to avoid a filibuster.  The Byrd Rule (named for former West Virginia Senator Robert Byrd) requires that the budgetary effects of reconciliation provisions must be more than merely incidental to their policy goals.  The Congressional Budget Office projected that merging the PCAOB into the SEC would reduce the deficit by $771 million over 10 years, although this calculation did not take into account the funding that the SEC would require to perform the PCAOB’s functions.  The Parliamentarian’s ruling, in effect, finds that the policy implications of abolishing the PCAOB outweigh the budgetary impact.  Nearly 100 academics and former regulators had sent a letter to the Senate Banking and Budget Committees arguing that the PCAOB provision violated the Byrd Rule and urging that it be deleted from the Senate’s reconciliation bill.  

While the Byrd Rule decision put an end to the possibility that Congress would abolish the PCAOB as part of the 2025 budget, the Board’s future remains uncertain.  Opponents of the PCAOB could attempt to eliminate the Board through the regular legislative process, although it seems unlikely that such legislation could meet the 60-vote Senate threshold.  However, the Board’s membership and budget are subject to the SEC’s control.  Considering past precedent, it is likely that the Commission under Chair Atkins will replace the current Board with members more in tune with his regulatory philosophy. The Board’s 2025 $400 million annual budget is also likely to shrink next year.  While the Board will remain a separate regulatory body for the foreseeable future, the SEC is likely to use its authority to significantly redirect its activities.