GOP Bill Would Abolish Audit Overseer’s Investor Adviser Panel

By Steve Burkholder

House Republicans want to abolish the investor-advisory panel of the agency that oversees auditors of public companies as part of an effort to overhaul the 2010 law that stiffened regulation of the banking and securities industries.

The Republican lawmakers see the Investor Advisory Group of the Public Company Accounting Oversight Board as redundant and unnecessary, according to Bloomberg BNA interviews.

For their part, investor advocates and proponents of strong auditing aren’t happy with the draft Financial CHOICE Act’s planned demise of the relatively obscure panel of the PCAOB. They say its advisory work contributes directly to PCAOB’s mission—to protect investors by helping insure that companies provide reliable and accurate financial reports.

The overarching proposed measure, spearheaded by House Financial Services Committee Chairman Jeb Hensarling (R-Texas), would pull back significantly from many securities and banking regulations and processes—chiefly the post-financial crisis Dodd-Frank Act of 2010.

Hensarling and allies, including those in the Trump administration, say such regulations hinder business growth and investment and the availability of loans.

Democrats in Congress generally oppose such a wholesale regulatory retreat. They argue that the Dodd-Frank law and associated regulations are important in preventing a recurrence of the banking and corporate practices and insufficient government oversight that resulted in the cataclysmic meltdown of 2008-09. The meltdown led directly to Dodd-Frank.

PCAOB Investor Panel Called ‘Unnecessary’

House Republicans believe the 22-member PCAOB Investor Advisory Group is unnecessary because the Securities and Exchange Commission, which oversees the PCAOB has its own Investor Advisory Committee and a formally designated investor advocate, according to a member of the Republican staff of the Financial Services Committee who is familiar with the legislation.

The nascent CHOICE Act would spare the SEC’s Investor Advisory Committee. Instead, it calls for what are billed as improvements to that panel, including term limits for committee members—for reasons of good governance and to prevent them from becoming entrenched—a Republican committee staff member told Bloomberg BNA April 25.

Opposite Views from Investor Advocates

The Council of Institutional Investors and members of the Investor Advisory Group—made up of veterans of auditing, professional investors, and a former federal judge—disagreed strongly with the draft legislation’s proposal to abolish the PCAOB panel.

“The PCAOB’s mission, as mandated by Congress, is to protect investors,” Jeffrey Mahoney, CII’s general counsel, told Bloomberg BNA April 25. “Investors are the primary users of the audited financial reports that the PCAOB oversees.”

“Therefore, the primary role of the PCAOB should be to ensure that investors’ information needs are met,” Mahoney said. “To do this, the board and its staff must actively solicit and carefully consider investor input.” The investor advisory panel is an important entity in that process, he said.

Linda de Beer, a member of the Investor Advisory Group and a former chair of an advisory panel of the International Auditing and Assurance Standards Board, agreed.

“It is of the utmost importance that investors, who appoint and indirectly pay for auditors, have input into the setting of technical and ethical standards for auditors,” de Beer told Bloomberg BNA April 26. “They are the key beneficiary and sponsor of the service.”

Bloomberg BNA was unable to obtain specific comment on the proposal from the U.S. Chamber of Commerce, which has been a leading proponent of the overall Dodd-Frank regulatory pullback.

A PCAOB spokeswoman declined comment April 26 when asked about the proposed abolition of the Investor Advisory Group.

To contact the reporter on this story: Steve Burkholder in Norwalk, Conn. at sburkholder@bna.com

To contact the editor responsible for this story: S. Ali Sartipzadeh at asartipzadeh@bna.com

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