Accounting
The regulatory forecast under Trump: Less, and lighter
Get ready for a very different regulatory environment.
President Donald Trump and his administration have been aggressively overhauling the federal government, with hiring freezes and layoffs, while rolling back rules and regulations at the Public Company Accounting Oversight Board and the Securities and Exchange Commission, as well as threatening to overhaul the Internal Revenue Service and the Treasury Department.
Only a few days after Trump’s inauguration, the SEC
The SEC in general appears to be taking a more industry-friendly approach than under its previous chairman, Gary Gensler, who
Kenny Holston/Bloomberg
AICPA & CIMA president and CEO Mark Koziel
“There are rumors we’re dealing with currently, and Paul Atkins, in his prior stint with the SEC, was already pretty vocal about the fact that he wouldn’t mind seeing the PCAOB be shut down, and anything that the PCAOB does get rolled up into the SEC,” said Koziel. “So that is something that we are working on today in preparation. People have said, ‘Are you for or against PCAOB?’ For us, whatever they decide to do, we’re going to work with whatever regulator we need to work with as a profession to make sure that we’re serving the public interest the way it needs to be.”
More changes at the audit overseer?
Other observers also see the likelihood of a shakeup of the board members at the PCAOB, as happened during the previous Trump administration and again during the Biden administration.
“I suppose it’s probably pretty likely that there will be maybe a complete change in the membership of the board,” said Dan Goelzer, one of the original members of the PCAOB and later an acting chair. “That happened both of the last times around when there was a change in administration. I don’t really say that with any pleasure. I’d rather see a less political PCAOB. But as a practical matter, I certainly think the new SEC would look to change the chair of the PCAOB — I suppose that’s quite likely at least — and some of the other board members as well.”
There may be a restructuring of the PCAOB as well, along with its possible absorption into the SEC. “The other big picture issue is whether broad efforts to restructure or streamline the government are going to include the idea of folding the PCAOB into the SEC,” said Goelzer. “That came up during the prior Trump administration and was actually proposed in one of Trump’s budgets, and it’s in the Heritage Foundation report. I suspect that will come up as a discussion item, at least. Whether it would actually make it through Congress is far from clear.”
The PCAOB was created under the Sarbanes-Oxley Act of 2002, so it would theoretically take an act of Congress to abolish the board. However, other agencies such as the U.S. Agency for International Development and the Consumer Financial Protection Bureau were also created by Congress, yet the Trump administration and Elon Musk’s Department of Governmental Efficiency have nevertheless moved to dismantle them.
The Center for Audit Quality has been watching the changes at the PCAOB and the SEC closely, and CEO Julie Bell Lindsay noted that the SEC will be dealing with the impact of two Supreme Court decisions last year limiting the use of administrative law judges and court reliance on agency regulations under the longstanding “Chevron deference” doctrine. In the wake of those two decisions in the
It’s not clear if the PCAOB will be as busy with rolling out new standards as it was during the Biden administration, especially after
“Over the past couple of years, at the CAQ, we’ve been supportive of the PCAOB modernizing and updating their standards, which have not been updated for 20-plus years,” said Bell Lindsay. “We’ve been supportive of that, but we’re also certainly pointing out areas of concern where we feel that there could be unintended consequences.”
She noted that the CAQ submitted comment letters on nine PCAOB proposed standards and rules, five of which were supportive, and four of which were not. “Generally, when we’ve expressed concerns or have not been supportive of a particular standard from the PCAOB, it really comes down to three different areas of concern,” said Bell Lindsay. “One is the lack of data-driven analysis, where what is the problem trying to be solved is something that we’re focused on. To the extent we can, we have tried to provide data and research to the board to inform the standard-setting process. The second area is lack of cost-benefit analysis. For example, on the NOCLAR proposal, there was not even a cost estimate included in that proposal by the PCAOB. We and other stakeholders in the ecosystem attempted to put together a cost analysis of the proposed standard, but needing to fully understand that is very important.”
The PCAOB and the SEC will probably be expected to provide more rigorous cost-benefits analysis for any new standards, rules and regulations. One of the PCAOB board members, Christina Ho, has
Bell Lindsay would like to see the PCAOB create more outside advisory groups apart from its Investor Advisory Group and Standards and Emerging Issues Advisory Groups so it can consult with a greater variety of outside stakeholders.
As for the SEC, she is hopeful about Atkins becoming chair since she used to work with him while they were both at the SEC. “I had the privilege of serving at the commission when Paul was a commissioner,” said Bell Lindsay. “I was there from 2002 to 2005, so I do know him fairly well. He was there during the standing up of the PCAOB in the mid-2000s. Officially, we’re not sure where Paul is going to stand on things. What I have found is that Paul is very reasonable, and I do believe he appreciates the key role that the public company audit profession serves in the capital markets and the need for effective, transparent oversight of the audit profession.”
Enforcement and inspections
Goelzer anticipates less emphasis on enforcement now at the PCAOB. “One change I would expect is that, at least to my perception, these enforcement programs have become more focused on violations that don’t directly relate to the auditing process or failures in the auditing process — things like filing Form AP on time or not including some participating firm in the Form AP, that type of thing — and then fairly substantial monitoring penalties for those violations,” he said. “I would expect that to change. Enforcement programs might go back more to focusing on what I would call substantive audit failures.”
The SEC and the PCAOB may end up backing away from the stepped-up enforcement seen in recent years under Gensler and PCAOB chair Erica Williams. There may even be a complete
“The current board’s priorities were to use enforcement as a regulatory tool, more standards and more enforcement,” said Jackson Johnson, president of Johnson Global Advisory, a Washington, D.C.-based firm that helps auditing firms navigate the PCAOB inspection process. “The next board will be quite different. The next board will have a more collaborative mindset with firms, more information-gathering with stakeholders, more economic analysis to inform standard-setting, more robust economic analysis to inform standard-setting.”
He acknowledged that the PCAOB had accomplished a great deal under Williams, including the
“For me, what I want for firms will be a period of recalibration and digesting what has been thrown on them over the last couple years through all of these new standards,” said Johnson.
He anticipates a slowdown in rulemaking at the board. “I’m not sure how much of a flurry of new enforcement cases will be brought,” he said. “I think right now, we are going to be for some time in this transitional stage. As soon as some of these board members at the PCAOB depart voluntarily or involuntarily, there will be a lack of a quorum at the board, so there will be a temporary stoppage of action, and that will affect everything from inspection reports to opening investigations. All of those things need a majority board to approve. The last time we did an administrative change, there was a holdup of inspection reports for a while, and it took some time before the PCAOB had a full board back in place. While I’m working on enforcement cases right now, I think when the board starts to shuffle, there might be a period of time where we see a slowdown in new investigations, but frankly, other things too, like new proposed standards and new inspection reports getting issued, because all of these things require a board vote.”
The PCAOB could be returning to its roots in some ways in the new administration. “I think what you’ll see is kind of a return to the core mission,” said Steven Richards, a senior managing director at Ankura in Washington, D.C., who was a previous advisor to the PCAOB and an assistant chief accountant at the SEC. “They’ve been very aggressive in upstaffing. Their budget has gone up, so I think what you’ll see is the commission, through the chair, put some constraints on that kind of stuff, and actually I think you’ll see the budget shrink. I think it will be a return to their core mission around investor protection through high-quality audits. I think you’ll see them focus very much on the inspection program. They’ve had an increase in both fines and case counts, but the majority of the case count increases have been really more compliance-oriented things being turned into enforcement matters that used to go through other processes of the board, like remediation and the inspection division. I don’t think you’ll see that anymore. I think those kinds of cases will go away and go to a different mechanism.”
He believes monetary penalties will go down as well. “You’ll see something around the civil monetary penalties having a better relationship to the conduct,” said Richards. “Before this last administration, penalties were too low, but they swung too far and now they got completely out of hand relative to the type of conduct. I think what you’ll see is a revision more toward the norm and a refocusing on the core mission. The inspection division drives a lot of good audit improvement. I think you’ll see that division continue to function more or less like it has the past, but with much more focus on core audit, the performance of the audit, and probably a little less around some of these other compliance things that don’t have as direct an intersection with poor performance of the audit or the quality control system around it. Generally speaking, the commission is going to control the board through its budget. … I don’t think it’s unlikely that they’re going to have to replace some members of the commission to do that. I think those are most likely: a smaller, leaner, more focused-on-core-mission PCAOB and probably some turnover at the board.”
He doesn’t expect to see the PCAOB folded into the SEC, as was proposed in a bill in 2022 by Rep. Bill Huizenga, R-Michigan.
“I wouldn’t expect that to be at the top of their agenda,” said Richards. “I think more likely what you’re going to see, just because it doesn’t require an active Congress, is control of the direction and priorities of the PCAOB and the SEC through the appropriations and budget process. Both are going to be under pressure, and they’re likely to make some changes at the board level, and that will also bleed out to the organization.”
During a recent AICPA conference, Rep. French Hill, R-Arkansas, and Mark Uyeda, who is now
“The administration’s direction is further underscored by the appointment of Paul Atkins, known for his skepticism of the PCAOB, to SEC chair,” said Jennifer Wood, assurance service line leader at Top 100 Firm The Bonadio Group. “These events reflect a broader shift toward capital formation and reduced compliance burdens. Reduced compliance costs and increased efficiency sound appealing, but there’s also a risk of losing the rigorous oversight that underpins accurate financial reporting and protects the public interest. If managed thoughtfully, a revamped PCAOB could streamline processes and refocus on high-impact areas. However, audit quality, transparency and investor protection are non-negotiables for a thriving financial system, and they must remain front and center as we navigate this transition.”
The Financial Accounting Standards Board met this week to discuss its projects on accounting for transfers of cryptocurrency assets and enhancing the disclosures around certain digital assets, such as stablecoins.
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During Wednesday’s meeting, FASB’s board made certain tentative decisions, according to a
At a future meeting, the board plans to consider clarifying the derecognition guidance for crypto transfer arrangements to assess whether the control of a crypto asset has been transferred.
FASB also began deliberations on the
The board decided to provide illustrative examples in Topic 230, Statement of Cash Flows, to clarify whether certain digital assets such as stablecoins can meet the definition of cash equivalents. It also decided to include the following concepts in the illustrative examples:
- Interpretive explanations that link to the current cash equivalents definition;
- The amount and composition of reserve assets; and,
- The nature of qualifying on-demand, contractual cash redemption rights directly with the issuer.
FASB plans to clarify that an entity should consider compliance with relevant laws and regulations when it’s creating a policy concerning which assets that satisfy the Master Glossary definition of the term “cash equivalents“ will be treated as cash equivalents.
“I agree with the staff suggestion to look at examples,” said FASB vice chair Hillary Salo. “From my perspective, I think that is going to help level the playing field. People have been making reasonable judgments. I agree with that. And I think that this is really going to help show those goalposts or guardrails of what types of stablecoins would be in the scope of cash equivalents, and which ones would not be in the scope of cash equivalents. I certainly appreciate that approach, and I think it has the least potential impact of unintended consequences, because I do agree with my fellow board members that we shouldn’t be changing the definition of cash equivalents, and it’s a high bar to get into the cash equivalent definition.”
“I’m definitely supportive of not changing the definition of cash equivalents,” said FASB chair Richard Jones. “I believe that’s settled GAAP in a way, and we’re not really seeing a call to change it for broader issues. I am supportive of the example-based approach. The challenge with examples, though, is everybody’s going to want their exact pattern, but that’s not what we’re doing.”
The examples will explain the rationale for how digital assets such as stablecoins do or do not qualify as cash equivalents and give a roadmap for other types of digital assets with varying fact patterns to be able to apply.
“We really don’t want to be as a board facing a situation where something was a cash equivalent and then no longer is at a later date,” said Jones. “That’s not good for anyone, so keeping it as a high bar with certain rigid criteria, I think, is fine.”
Stablecoins are supposed to be pegged to fiat currencies such as U.S. dollars and thus provide more stability to investors. “In my view, while a stablecoin may meet the accounting definition established for cash equivalents, not every one of those stablecoins in the cash equivalent classification represents the same level of risk,” said FASB member Joyce Joseph.
She noted that the capital markets recognize the distinctions and have established a Stablecoin Stability Assessment Framework to evaluate a stablecoin’s ability to maintain its peg to a fiat currency. Such assessments look at the legal and regulatory framework associated with the stablecoin, and provide investors with information that could enable them to do forward-looking assessments about the stability of the stablecoin.
“However, for an investor to consider and utilize such information for a company analysis the financial statement disclosures would need to include information about the stablecoin itself,” Joseph added. “In outreach, the staff learned that investors supported classifying certain stablecoins as cash equivalents when transparent information is available about the entities at which the reserve assets are held. Therefore, in my view, taking all of this into consideration a relevant and informative company disclosure would include providing investors with the name of the stablecoin and the amount of the stablecoin that is classified as a cash equivalent, so investors can independently assess the liquidity risks more meaningfully and more comprehensively by utilizing broader information that is available in the capital markets and its emerging information.”
Such information could include the issuer, reserves, governance and management, she noted, so investors would get a more holistic look at the risks that holding the stablecoin would entail for a given company.
The board decided to require all entities to disclose the significant classes and related amounts of cash equivalents on an annual basis for each period that a statement of financial position is presented.
Entities should apply the amendments related to the classification of certain digital assets as cash equivalents on a modified prospective basis as of the beginning of the annual reporting period in the year of adoption.
FASB decided that entities should apply the amendments related to the disclosure of the significant classes and amounts of cash equivalents on a prospective basis as of the date of the most recent statement of financial position presented in the period of adoption.
The board will allow early adoption in both interim and annual reporting periods in which financial statements have not been issued or made available for issuance.
FASB also decided to permit entities to adopt the amendments to be illustrated in the examples related to the classification of certain digital assets as cash equivalents without the need to perform a preferability assessment as described in Topic 250, Accounting Changes and Error Corrections.
The board directed the staff to draft a proposed accounting standards update to be voted on by written ballot. The proposed update will have a 90-day comment period.
Senators introduced several pieces of tax-related legislation this week, including measures aimed at improving customer service at the Internal Revenue Service, cracking down on tax evasion and curbing the carried interest tax break, in addition to efforts in the House to repeal the Corporate Transparency Act.
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Senators Bill Cassidy, R-Louisiana, and Mark Warner, D-Virginia, teamed up on introducing a bipartisan bill, the
The bill would establish a dashboard to inform taxpayers of backlogs and wait times; expand electronic access to information and refunds; expand callback technology and online accounts; and inform individuals facing economic hardship about collection alternatives.
“Taxpayers deserve a simple, stress-free experience when dealing with the IRS,” Cassidy said in a statement Wednesday. “This bill makes the process quicker and easier for taxpayers to get the information they need.”
He also mentioned the bill during a
“I’m happy to meet with the team … and do all I can to make it as good as you want it to be,” said Bisignano.
“My bill would equip the IRS with the legislative mandate to create an online dashboard so that taxpayers can monitor average call wait time and budget time accordingly,” said Cassidy. He noted that the bill would allow a callback for taxpayers that might need to wait longer than five minutes to speak to a representative, and establish a program to identify and support taxpayers struggling to make ends meet by providing information about alternative payment methods, such as installments, partial payments and offers in compromise.
“I know people are kind of desperate and don’t know where to turn for cash, so I think this could really ease anxiety,” he added. “This legislation is bipartisan and is likely to pass this Congress.”
Cassidy and Warner
“Taxpayers shouldn’t have to jump through hoops to get basic answers from the IRS — and in the last year, those challenges have only gotten worse,” Warner said in a statement. “I am glad to reintroduce this bipartisan legislation on Tax Day to ease some of this frustration by increasing clear communication and making IRS resources more readily available.”
Stop CHEATERS Act
Also on Tax Day, a group of Senate Democrats and an independent who usually caucuses with Democrats teamed up to introduce the Stop Corporations and High Earners from Avoiding Taxes and Enforce the Rules Strictly (Stop CHEATERS) Act.
Senate Finance Committee ranking member Ron Wyden, D-Oregon, joined with Senators Angus King, I-Maine, Elizabeth Warren, D-Massachusetts, Tim Kaine, D-Virginia, and Sheldon Whitehouse, D-Rhode Island. The bill would provide additional funding for the IRS to strengthen and expand tax collection services and systems and crack down on tax cheating by the wealthy.
“Wealthy tax cheats and scofflaw corporations are stealing billions and billions from the American people by refusing to pay what they legally owe, and far too many of them are getting a free pass because Republicans gutted the enforcement capacity of the IRS,” Wyden said in a statement. “A rich tax cheat who shelters mountains of cash among a web of shell companies and passthroughs is likelier to be struck by lightning than face an IRS audit, and Republicans want to keep it that way. This bill is about making sure the IRS has the resources it needs to go after wealthy tax cheats while improving customer service for the vast majority of American taxpayers who follow the law every year.”
Earlier this week. Wyden also
The Stop CHEATERS Act would provide the IRS with additional funding for tax enforcement focused upon high-income tax evasion, technology operations support, systems modernization, and taxpayer services like free tax-payer assistance.
“As Congress seeks ways to fund much-needed policy priorities and address our growing national debt, there is one common sense solution that should have unanimous bipartisan support: let’s enforce the tax laws already on the books,” said King in a statement. “Our legislation will make sure the IRS has the resources it needs to confront the gap between taxes owed and taxes paid – while ensuring that our tax enforcement professionals are focused on the high-income earners who account for the most tax evasion. This is a serious problem with an easy solution; let’s pass this legislation and make sure every American pays what they owe in taxes.”
Carried interest
Wyden, King and Whitehouse also teamed up on another bill Thursday to close the carried interest tax break for hedge fund managers that
Carried interest is a form of compensation received by a fund manager in exchange for investment management services, according to a
Under the bill, the
“Our tax code is rigged to favor ultra-wealthy investors who know how to game the system to dodge paying a fair share, and there is no better example of how it works in practice than the carried interest loophole,” Wyden said in a statement. “For several decades now we’ve had a tax system that rewards the accumulation of wealth by the rich while punishing middle-class wage earners, and the effect of that system has been the strangulation of prosperity and opportunity for everybody but the ultra-wealthy. There are a lot of problems to fix to restore fairness and common sense to our tax code, and closing the carried interest loophole is a great place to start.”
Repealing Corporate Transparency Act
The House Financial Services Committee is also planning to markup a bill next Tuesday that would fully repeal the Corporate Transparency Act, which has already been significantly
If enacted, the repeal would eliminate beneficial ownership reporting requirements, removing a transparency measure designed to help law enforcement and national security officials identify who is behind U.S. companies.
“This repeal would turn the United States back into one of the easiest places in the world to set up anonymous shell companies, something Congress worked for years to fix,” said Erica Hanichak, deputy director of the FACT Coalition, in a statement. “These entities are routinely used to facilitate corruption, financial crime, and abuse. Rolling back the CTA doesn’t just weaken transparency, it signals to bad actors around the world that the U.S. is once again open for illicit business.”
The Internal Revenue Service rarely penalizes taxpayers who have high balances in foreign bank accounts and fail to file the proper forms, according to a new report.
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The
Taxpayers with specified foreign financial assets that meet a certain dollar threshold are also required to report the information to the IRS by filing Form 8938. Failure to file the form can result in penalties of up to $60,000. However, TIGTA’s previous reports have demonstrated that the IRS rarely enforces these penalties.
The IRS created an Offshore Private Banking Campaign initiative to address tax noncompliance related to taxpayers’ failure to file Form 8938 and information reporting associated with offshore banking accounts, but it’s had limited success.
Even though the initiative identified hundreds of individual taxpayers with significant foreign bank account deposits who failed to file Forms 8938, the campaign only resulted in relatively few taxpayer examinations and a small number of nonfiling penalties. The campaign identified 405 taxpayers with significant foreign account balances who appeared to be noncompliant with their FATCA reporting requirements.
The IRS used two ways to address the 405 noncompliant taxpayers: referral for examinations and the issuance of letters to them.
- 164 taxpayers (who had an average unreported foreign account balance of $1.3 billion) were referred for possible examination, but only 12 of the 164 were examined, with five having $39.7 million in additional tax and $80,000 in penalties assessed.
- 241 noncompliant taxpayers (who had an average unreported account balance of $377 million) received a combination of 225 educational letters (requiring no response from the taxpayers) and 16 soft letters (requiring taxpayers to respond). None of the 241 taxpayers were assessed the initial $10,000 FATCA nonfiling penalty.
“While taxpayers can hold offshore banking accounts for a number of legitimate reasons, some taxpayers have also used them to hide income and evade taxes,” said the report.
Significant assets and income are factors considered by the IRS when assessing whether taxpayers intentionally evaded their tax responsibilities, the report noted. Given the large size of the average unreported foreign account balances, these taxpayers probably have higher levels of sophistication and an awareness of their obligation to comply with the law.
TIGTA believes the IRS needs to establish specific performance measures to determine the effectiveness of the FATCA program. “If the IRS does not plan to enforce the FATCA provisions even where obvious noncompliance is identified, it should at least quantify the enforcement impact of its efforts,” said the report. “This will ensure that IRS decision makers have the information they need to determine if the FATCA program is worth the investment and improves taxpayer compliance.
TIGTA made three recommendations in the report, including revising Campaign 896 processes to include assessing FATCA failure to file penalties; assessing the viability of using Form 1099 data to identify Form 8938 nonfilers; and implementing additional performance measures to give decision makers comprehensive information about the effectiveness of the FATCA program. The IRS disagreed with two of TIGTA’s recommendations and partially agreed with the remaining recommendation. IRS officials didn’t agree to assess penalties in Campaign 896 or with implementing performance measures to assess the effectiveness of the FATCA program.
“From our perspective, TIGTA’s conclusions regarding IRS Campaign 896 are based, in part, on a misguided premise and overgeneralizations, including the treatment of ‘potential noncompliance’ as tantamount to ‘egregious noncompliance’ that warrants a monetary penalty without contemplating the variety of justifications that may exempt a taxpayer from having to file Form 8938,” wrote Mabeline Baldwin, acting commissioner of the IRS’s Large Business and International Division, in response to the report.
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