In an apparent vote of confidence for the Public Company Accounting Oversight Board and its embattled chairman, James R. Doty, Securities and Exchange Commission Chairman Jay Clayton announced that Doty has agreed to stay on as the SEC begins to fill four out of the PCAOB’s five board seats.
“Given the importance of the PCAOB to our capital markets, one of my priorities upon assuming the SEC’s Chairmanship was to initiate a process to bring the PCAOB to full strength,” Clayton, a Trump nominee who has been serving since May 4, said in a statement issued Friday.
Created by the Sarbanes-Oxley Act of 2002, the PCAOB is governed by a board of five members — two of whom must be certified public accountants, and three of whom must not be — serving for staggered five-year terms. Of the five seats, one is vacant, two are held by members whose terms have expired, and one is held by a member whose term will expire in two months.
Doty, whose term expired at the end 2015, has continued to serve in the absence of a replacement. In recent years, he has been under fire from the SEC and other critics for a salary reportedly north of $670,000 and alleged foot-dragging by the board on standard setting.
Further, Doty’s escalation of PCAOB investigations of audit firms and the publication of the results have caused the U.S. Chamber of Commerce and other critics to label the board an opponent of business.
Given the deregulatory mood of the Trump administration and Congress, the PCAOB itself has seemed to be under threat. For example, Paul Gillis, a former member of the board’s advisory group, has called on President Trump to “get rid of the PCAOB” and return public accounting back to the self-regulatory system that preceded the board.
In such an environment, Clayton’s statement of determination to fully staff the PCAOB and his positive words about Doty may have come as a surprise to some observers. Clayton praised Doty as a “consummate public servant since he first stepped into the role of General Counsel of the SEC in 1990.”
Prior to and following his SEC service in 1992, Doty was a partner at the law firm of Baker Botts, which he first joined in 1969. At Baker Botts, he represented the PCAOB in its successful 2010 defense in Free Enterprise Fund v. PCAOB, a U.S. Supreme Court challenge to the constitutionality of the PCAOB.
After assuming the PCAOB chairmanship in 2011, Doty has “played a critical role in the development and success of the organization during his tenure,” Clayton said. “I have known and respected Jim for many years. His commitment to America has been unwavering and his achievements significant.”
In particular, Clayton praised Doty’s leadership in improving the PCAOB’s risk-based approach to inspections and promotion of “improvements to audit quality in the audits of issuers and broker-dealers.” The increased vigor of the board’s inspections of audit firms has been a particular point of friction with Big Four firms.