SEC, PCAOB relax enforcement against auditors

The Securities and Exchange Commission and the Public Company Accounting Oversight Board have been lightening the load on audit firms, with the SEC initiating only one enforcement action against auditors in the third quarter of the year, according to a new report.

The report, released Thursday by the Brattle Group, follows up on a report released in March by the research firm that showed early signs of a more deregulatory approach by the SEC and PCAOB in the early months of the Trump administration. The new analysis finds that the third quarter of 2025 marked a defining inflection point for auditor oversight in the U.S., especially after the confirmation in April of a new SEC chair, Paul Atkins, following the exit of former SEC chair Gary Gensler on Trump's Inauguration Day, and the ouster of former PCAOB chair Erica Williams by Atkins. The report found the PCAOB initiated 32 actions during the third quarter, which was comparable to recent years, but only one occurred before Williams's departure in July.

"After several months of uncertainty, the third quarter of 2025 marked a defining inflection point for auditor oversight in the United States," said the report. "With leadership changes at both agencies signaling a shift away from the aggressive enforcement posture that characterized the Gensler/Williams era, Q3 activity provided the first clear indications of how the new administration's priorities may reshape the regulatory landscape."

The report noted that during Q3, the PCAOB's continued existence came under threat by a proposal to dissolve the PCAOB through President Trump's "One Big Beautiful Bill." But the PCAOB received a reprieve when the Senate Parliamentarian ruled that the measure could not proceed under budget reconciliation procedures. However, not long after that, Atkins announced plans to initiate an overhaul of the PCAOB board, which suggests a realignment of the PCAOB's oversight priorities is underway.

Other big leadership changes and developments occurred this year, including the appointment of a new chief accountant Kurt Hohl and enforcement director Margaret Ryan at the SEC, and the creation of the SEC's Cross-Border Task Force.

"Together, these events signal a shift away from the aggressive enforcement posture that characterized prior SEC and PCAOB administrations and point to a realignment of priorities," said Alison Forman, a principal in the Brattle Group's Chicago office and co-leader of the firm's accounting practice.

Ongoing constitutional challenges have only added to the regulatory uncertainty at the SEC and the PCAOB, the report noted. The Supreme Court's June 2024 decision in the case of SEC v. Jarkesy limited the SEC's use of administrative proceedings, along with parallel "John Doe" challenges to the PCAOB's disciplinary process, raising questions about both agencies' adjudicatory authority. Those developments could have contributed to lower auditor-related enforcement activity during Q3 and fundamentally change how future cases are brought and resolved.

From Q1 through Q3 2025, the PCAOB and SEC together imposed total monetary sanctions of $17.7 million on auditors and audit firms, according to the report. In comparison, monetary sanctions in the first nine months of 2024 totaled $51.1 million. The PCAOB imposed all but $230,000 of the total penalties.

The PCAOB levied penalties of more than $17.4 million in the first three quarters of 2025, more than the total amount of annual penalties imposed by the PCAOB every year except 2023 and 2024, but all but $100,000 was imposed prior to former Williams's resignation on July 22.

Most of the penalties hit firms in other countries. Nearly two-thirds of Q1–Q3 2025 penalties ($11.25 million) were imposed on four foreign affiliates of Big Four firms for violations related to improper answer sharing. Nearly 20% of Q1 through Q3 2025 penalties ($3.4 million) were levied on nine foreign affiliates of a Big Four firm for allegedly inaccurate Form APs, Auditor Reporting of Certain Audit Participants, in violation of the PCAOB's Rule 3211. Two auditing firms were required by the PCAOB to procure an independent consultant to review and make recommendations about the firms' systems of quality control. 

PCAOB priorities

The report's release comes as the PCAOB hosted a two-day gathering this week of the International Institute on Audit Regulation, in Washington, D.C. The PCAOB's acting chair, George Botic, discussed two of the emerging concerns of the PCAOB during a speech Tuesday at the conference: private equity investment in accounting firms and the rapid adoption of artificial intelligence in audits.

"These trends have the potential to transform auditing as we know it and require our continued attention," he said. "First, private equity investments and other alternative financing arrangements in accounting firms are reshaping ownership structures. These investments can be used to acquire advanced technologies, streamline operations, and assist in attracting and retaining professionals, which can lead to enhanced audit quality. But there are concerns from regulators and standard-setters around the globe."

Botic pointed out that this summer, the International Ethics Standards Board for Accountants issued a staff alert about the risks that private equity investments in the audit pose to auditor independence and the potential for conflicts of interest. He noted that data from the Dutch Authority for the Financial Markets shows several trends in private equity-backed audits: a decline in statutory auditor involvement, reduced identification of significant risks, and increased threats to independence.

"I, too, have my own concerns that the private equity model focused on short-term ownership and possible cost-savings may change long established incentive structures and behaviors within accounting firms and may, over time, undermine the core principles of audit quality," said Botic.

However, he added that he recognizes that many accounting firms now face additional demands for capital that need to be met to remain competitive, and those demands may not be achieved through the traditional partnership structure.

"As regulators, we must ensure our oversight remains vigilant as this trend continues," said Botic. "This vigilance requires engagement with all stakeholders, and in particular, it requires encouraging academic research to ensure we have a comprehensive understanding of not only the challenges and risks, but also the benefits of these investments and structures."

On the subject of AI, Botic cited a recent Accounting Today survey showing that 72% of respondents are "comfortable using technology for work that traditionally required human effort," with 53% of respondents reporting that AI makes them more effective. 

"A challenge then lies in the deployment of this technology and what exactly it is being used for," said Botic.

He also cited another recent study from Wolters Kluwer that found 70% of U.S. audit professionals say they use AI weekly in their role, and more than three-quarters of firms plan to increase their AI investments.

"As AI tools begin to influence judgments traditionally made by humans, auditors must grapple with how to preserve due professional care, professional skepticism, independence, and accountability in a rapidly changing digital landscape," said Botic.