12/26/2025
Question to Students, Did Kurt realy say anything?
WASHINGTON—The
Securities and Exchange Commission is evaluating whether to change
rules around conflicts of interest for auditors and their clients, how
its audit watchdog handles inspections of accounting firms and the cost
for companies of complying with requirements.
Accounting
standard setters need to more closely scrutinize the costs of
disclosures for companies applying new rules, SEC Chief Accountant Kurt Hohl
said Monday at a conference in Washington, D.C. “What we don’t want to
happen is essentially a high compliance cost to dissuade companies from
accessing the public market,” Hohl said.
Hohl,
who has served as chief accountant since July, advises the commission
on accounting and auditing issues and oversees interpretation of
accounting rules. Hohl spent 26 years as a partner at Ernst & Young,
rising to global deputy vice-chair of the Big Four firm’s global
assurance professional practice and retiring in 2023. He also previously
worked at the SEC from 1989 to 1997.
The
chief accountant is involved in the SEC’s search for candidates for all
five positions on the Public Company Accounting Oversight Board. The
PCAOB was spared from elimination in July when the Senate passed a tax
bill that omitted the measure. The Senate parliamentarian determined
that including the provision in the bill violated budget reconciliation rules.
Hohl
discussed some of the key issues he’s watching in an interview with the
WSJ Leadership Institute’s CFO Journal. His answers have been edited
for length and clarity.
What do you want to see change with the SEC’s auditor independence rules? The regulator last eased these rules in 2020.
The
independence rules are fairly clear. You can’t have direct business
relationships with audit clients. Where it gets complex is where you
basically are partnering with a nonaudit client and that nonaudit client
uses an audit client as part of their service delivery. That’s what
adds complications to the situation. Looking and seeing how pervasive
that is, looking and making sure and talking with firms to understand
how that affects how they monitor and enforce their independence
requirements is something that’s top of mind.
Is that a greater issue amid companies’ AI partnerships and private-equity money pouring into accounting firms?
There
are complications that AI adds to the business development relationship
required under the auditor independence rules. Also private equity is
buying some of these smaller accounting firms and making the decision
that we don’t want to serve in the public company market anymore because
it’s too expensive for us to operate in that space. Auditor choice is a
priority. We want to make sure that companies accessing the public
markets—we’re trying to encourage companies to come to the
marketplace—have a choice of audit firms in which to pick from.
There’s
nothing in the works to loosen the independence rule. But we want to
take a look at how the changing business environment affects our
independence rules to make sure that they continue to be fit for purpose
in the environment. We’ll work closely with the commission in terms of
our observations and how they apply to the current rules, and we’ll
decide what to do at that time.
What would a potential change to auditor independence rules look like?
I
talk to the private-equity firms all the time. Some of the things that I
did in retirement was actually consult for PE firms. The focus was,
hey, look, if you’re going to do this, there’s a cost to basically build
a high-quality audit practice that serves the public markets. You have a
lot more rules that you have to comply with and the expectation is the
work that’s going to be done is going to be the highest quality
standard.
That’s
one of the things that I talk to PE firms about. If you’re going to do
this, you’ve got to go all in in order to make the investments that are
necessary to serve that marketplace and encourage them to stay in
because we want competitive options available.
On
the AI side, it’s kind of too early to make any call on what we’re
going to do there. We’re still studying the issue to figure out what if
any changes need to be made to deal with some of these indirect business
relationships or business relationship rules as they apply to use of
AI.
You’ve said you want the PCAOB to add more context to their inspection reports on audit firms. What would that look like?
I
mean, wouldn’t you like to know what the particular market share is and
what types of clients that your auditors were serving? If I basically
said here’s an auditor who’s not doing so well in quality and they
basically do like these types of audits, that’s some level of context. I
have no predisposed notion on what goes into the inspection report. If
the PCAOB shifts to a quality control or quality management process,
that adds complications because the statute limits what they can say
immediately. But I think that’s probably a better way to go because the
true accountability for a firm’s quality rests with their organization
structure, with their system of quality management and ultimately with
the firm’s leader, not the particular engagement team who’s getting
inspected.
Should the PCAOB be folded into the SEC and do you expect lawmakers to revive that push?
Audit
regulation is incredibly important. We need basically high-quality
auditing standards so that we have a robust capital market in the United
States. Whether it’s part of the SEC or part of the SEC’s oversight of
the PCAOB, it’s critically important to our ecosystem. I don’t follow
Capitol Hill very closely, but based on the fact that we were closed for
43 days and we couldn’t even get a simple vote on a continuing
resolution, I doubt if we’re going to basically see PCAOB elimination
and folding into the SEC anytime soon.
Write to Mark Maurer at mark.maurer@wsj.com
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Appeared in the December 11, 2025, print edition as 'SEC’s Top Accountant Weighs Altering Auditor Rules'.
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