Securities Regulation Daily Wrap Up, ACCOUNTING AND AUDITING—Senate parliamentarian says PCAOB-SEC merger provision must be cut from reconciliation bill, (Jun 20, 2025)

By Mark S. Nelson, J.D.

The bill, as originally drafted, would have merged the PCAOB’s functions into the SEC, but a separate provision eliminating an SEC reserve fund will remain.

The Senate parliamentarian has ruled that a number of banking and securities provisions contained in the Trump Administration’s reconciliation bill, the “One Big Beautiful Bill Act,” including one that would abolish the Public Company Accounting Oversight Board (PCAOB), must be left out because they violate the Byrd Rule, which states that only items germane to budgetary items are proper grist for a reconciliation bill. The reconciliation process is favored for partisan budget bills because it short-circuits the Senate filibuster, thus, almost always ensuring passage. The PCAOB provision in the Senate version of the bill also would not provide for Congressional funding of the SEC’s increased workload in replacing the PCAOB as the nation’s audit regulator.

Attempt to abolish the PCAOB. The PCAOB provision contained in the Senate’s version of the One Big Beautiful Bill Act would, within one year after enactment, abolish the PCAOB and terminate all of its board members. The PCAOB provision would not permit the SEC to use Sarbanes-Oxley Act Section 109(d) to collect the annual accounting support fee, nor would the provision permit the SEC to collect related fees under Exchange Act Section 31. Current PCAOB employees, however, may be retained by the SEC following the abolition of the PCAOB, subject to what the legislation refers to as “standard employment policies.” The House version of the One Big Beautiful Bill Act (H.R. 1) also would abolish the PCAOB but lacks many of the details found in the Senate version.

Senate Budget Committee Ranking Member Jeff Merkley (D-Ore) announced the parliamentarian’s rulings via press release. “Tonight [Wednesday June 19, 2025], the Senate Parliamentarian advised that certain provisions in the Republicans’ One Big, Beautiful Betrayal will be subject to the Byrd Rule – ultimately meaning they will need to be stripped from the bill to ensure it complies with the rules of reconciliation,” said Merkley. “As much as Senate Republicans would prefer to throw out the rule book and advance their families lose and billionaires win agenda, there are rules that must be followed and Democrats are making sure those rules are enforced.”

Key provisions for securities and banking practitioners that are impacted by the Byrd Rule include funding cuts for the PCAOB, the Consumer Financial Protection Bureau (CPFB), and the Office of Financial Research. In the case of the PCAOB, the amount cut would have been roughly $771 million.

A statement issued by Senate Banking Committee Ranking Member Elizabeth Warren (D-Mass), an early backer of what would become the CFPB, and which would be significantly impacted by the reconciliation bill, echoed Merkley. Said Warren: “These proposals are a reckless, dangerous attack on consumers and would lead to more Americans being tricked and trapped by giant financial institutions and put the stability of our entire financial system at risk–all to hand out tax breaks to billionaires. Democrats fought back, and we will keep fighting back against this ugly bill.”

Senate Banking Committee Chairman Tim Scott (R-SC) issued a rival statement emphasizing provisions that would remain in the reconciliation bill, including the elimination of an SEC reserve fund. “I remain committed to advancing legislation that cuts waste and duplication in our federal government and saves taxpayer dollars,” said Scott. Although Scott did not comment further about the PCAOB, he did reiterate that the CFPB remains a GOP reform priority. Said Scott: “My colleagues and I remain committed to cutting wasteful spending at the CFPB and will continue working with the Senate parliamentarian on the Committee's provisions.”

A key question looming over the proposed transfer of the PCAOB’s functions to the SEC is whether Congress will provide additional funds to the SEC for this purpose. As requested for FY26, the SEC’s funding would be flat versus the prior year at $2.149 billion. In testimony before the Senate Appropriations Subcommittee on Financial Services and General Government in early June 2025, newly confirmed SEC Chair Paul S. Atkins suggested that the SEC could absorb the PCAOB’s workload.

“There is some uncertainty regarding the FY 2026 budget, including the potential transfer of the functions of the Public Company Accounting Oversight Board (PCAOB) into the SEC,” said Atkins. “If Congress approves this budget request, we anticipate that this funding could support such a transfer of the PCAOB functions into the SEC in FY 2026.”

The PCAOB at 20-plus years old. The PCAOB was created more than 20 years ago in response to the Enron and WorldCom accounting scandals. For much of that time, the PCAOB’s auditing standards were those of prior oversight bodies that had been adopted on an interim basis, but in recent years the PCAOB has begun to replace the interim standards (See, e.g.,, a 2022 speech by current PCAOB Chair Erica Y. Williams discussing plans to address the remaining 2003 interim standards).

The PCAOB, however, has not been free of controversy. The PCAOB emerged from an exam cheating scandal and has survived a constitutional challenge to its structure. The latter challenge prompted the U.S. Supreme Court to strike the for-cause removal protection for PCAOB board members from the Sarbanes-Oxley Act, the PCAOB’s organic statute. The PCAOB has also been criticized for its statutory structure that keeps disciplinary proceedings private and for the large salaries paid to attract board members. Congress has repeatedly failed in its previous efforts to address some of these issues.

More recently, the Trump Administration-linked Project 2025, a conservative plan for reforming the federal government published by The Heritage Foundation, had called for the reconsideration of the status of the PCAOB.

“With regulatory authority delegated by the government, both the Public Company Accounting Oversight Board (PCAOB) and FINRA have proved to be ineffective, costly, opaque, and largely impervious to reform,” said the Project 2025 document. “To reduce costs and improve transparency, due process, congressional oversight, and responsiveness, PCAOB and FINRA should be abolished, and their regulatory functions should be merged into the SEC.”

In the years since the Supreme Court held that PCAOB board members do not enjoy dual tenure protection, both Republican and Democratic Administrations have tended to remake the board upon taking office (Gary Gensler-era changes and opposition statement; Jay Clayton-era changes and appointments). The SEC under Atkins, however, has not yet made a similar effort during the early months on the second Trump Administration.

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