Corporate Finance

Gensler Ousts PCAOB Chair; Other Board Members to Follow

Besides removing William D. Duhnke III, the SEC said it intends to seek candidates to fill the other Board positions.

In a statement that hit the Securities and Exchange Commission website at 4:14 p.m. on Friday, SEC Chair Gary Gensler said he removed William D. Duhnke III, chair of the Public Company Accounting Oversight Board, effective immediately.

Duhnke III’s term was not officially up until October 24, 2022.

Gensler designated Duane M. DesParte, who has been on the PCAOB since 2017, as acting chair.

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“The PCAOB has an opportunity to live up to Congress’s vision in the Sarbanes-Oxley Act,” said Gensler. “I look forward to working with my fellow commissioners, Acting Chair DesParte, and the staff of the PCAOB to set it on a path to better protect investors by ensuring that public company audits are informative, accurate, and independent.”

The SEC also announced that it intends to seek candidates to fill all five Board positions on the PCAOB.

That means DesParte and Board members Rebekah Goshorn Jurata and Megan Zietsman will also be leaving. Zietsman was sworn in less than a year ago, and Jurata’s term doesn’t expire until 2024. One board seat has been vacant since 2017.

The move by Gensler is not a surprise. As CFO reported on May 20, former members of the PCAOB’s Investor Advisory Group (IAG) sent a letter to Gensler and several Democratic politicians in mid-April calling for Duhnke III’s removal. The letter accused the PCAOB of “drifting away” from its “core mission of investor protection” in the past four years and said urgent action was needed to “restore investor trust and confidence in the quality of public company audits in the United States.”

The letter also said, “Given their track record, we do not believe the current PCAOB Board members are up to the task of re-focusing the PCAOB on its core mission because they are responsible for the dramatic shift away from what investors expect.”

The bloodletting at the PCAOB may also be an act of reprisal for Republican actions in 2017. In the wake of the KPMG-PCAOB cheating scandal, President Donald Trump’s SEC Chairman Jay Clayton installed a new PCAOB chair and three new Board members.

Progressive political groups, including Americans for Financial Reform and Public Citizen, have backed the current call to undo the changes made at the PCAOB under the Trump administration.

While SEC commissioners voted to approve Gensler’s move, the two Republicans, Hester Peirce and Elad Roisman, called the move “unprecedented.”

“A future in which PCAOB members are replaced with every change in administration would run counter to the Sarbanes-Oxley Act’s establishment of staggered terms for board members, inject instability at the PCAOB, and undermine the PCAOB’s important mission by suggesting that it is subject to the vicissitudes of politics,” Peirce and Roisman said.

Acting Chair DesParte, a CPA, joined the PCAOB after retiring from Exelon. He served as corporate controller and in other financial roles for 15 years, following an 18-year career in the audit assurance profession. DesParte’s term at the Board is not scheduled to end until October 2023.

The SEC said it had directed its Office of the Chief Accountant to begin soliciting new applications for the Board positions; additional information about that process will be provided in the coming weeks.