On November 20, 2025, an annual conference on audit standards was held at Baruch College in New York City and attended by professional accountants and investors with an interest in the practices and procedures used in the accounting industry. In light of recent news of bankruptcies related to hundreds of millions of dollars in bad debt that went undiscovered prior to bankruptcy, a conference on audit standards might seem more pertinent than in prior years. The conference didn't generate many stories in the news, but it should have. A comment included in the keynote address of the conference provided another example of how people in positions of control and influence can observe a situation, identify the obvious problem in that situation, and come to PRECISELY the wrong conclusion and recommendation for correcting the problem.
The keynote speaker at the conference was an official from the Securities and Exchange Commission (SEC), Kurt Hohl, who was appointed Chief Accountant of the SEC on July 7, 2025. Hohl's remarks to the audience involved the technical and ethical challenges posed by a world with ever-larger clients firms requiring audits by ever-larger audit firms. Hohl's comments included this statement:
If we interpret our independence rules exactly the way they are, we could get into a situation where some of these large companies don’t have an auditor choice...
Note that Hohl's comment was a tad longer than that but the only media outlet that covered this keynote address by Hohl directly was The Financial Times and their copyright restrictions prevent any direct or indirect quote longer than thirty words or the first 140 characters of their article. Their article didn't provide much more than what is included here and certainly did not capture his full presentation.
To better contextualize Hohl's comment and explain why it is so concerning, a bit of history must be provided first.
The Sarbanes-Oxley legislation was enacted in 2002 after bankruptcies directly caused by core financial fraud on the part of corporations were found to have been aided and abetted by their auditor firms who not only provided accounting services for quarterly and annual reporting but provided strategic consulting to the firms as well. This conflict of interest was core to the multi-billion dollar frauds at Enron and Worldcom, both of which hired Arthur Andersen for audit services and hired Andersen Consulting for "advice" in operations strategy. Both companies briefly achieved market-leading valuations before the numbers became too good to believed amid larger market turbulence, leading to the discovery of systemic fraudulent practices in the firms' accounting practices that essentially synthesized all of their profits from thin air.
Prior to Sarbanes-Oxley, guidelines already existed that prevented auditors (firms and their employees) from having financial stakes in clients being audited and for audit firms to avoid providing services directly related to the financial and accounting systems being audited. However, enforcement of these rules was more based on an "honor code" approach rather than aggressively enforced procedures and validations. That "honor code" level of enforcement failed miserably at Enron and Worldcom and legislators and investors feared it could and would happen again without stricter rules. Sarbanes-Oxley attempted to tighten these restrictions and provide more objective criteria by which violations could be identified and avoided.
Holh's comment on November 20 stated that the SEC is now recognizing that these rules of separation between audit activities and consulting activities are posing challenges to giant corporations doing multi-billion dollar "strategic" deals with each other that create outsized challenges for the auditors of the firms. To better explain the concern, let's look at a hypothetical example...
Imagine there are four large companies that provide audit services and consulting services. Let's call them
- Deloitte
- Ernst & Young
- Price Waterhouse Coopers
- KPMG
Imagine there are six enormous companies, all with market capitalizations ranging from a mere $300 billion to nearly $5 trillion dollars. In this hypothetical example, let's call these companies
- Oracle
- OpenAI
- Meta
- Amazon
- Alphabet
- Microsoft
- Nvidia
Clearly, even the smallest of these firms with a market capitalization of $300 billion dollars, tens of thousands of employees and business dealings in multiple countries cannot be audited by even a highly skilled local or regional audit firm. The sheer volume and complexity (intentional or merely consequential) of the books require ARMIES of auditors with years of experience in reviewing the transactions of this type of firm to derive any truth from the data. This expertise and staffing level can only be handled by one of the "big four" accounting firms.
Under the "independence" guideline pre-dating even Sarbanes-Oxley, the following choices of vendors for auditing and consulting would NOT be allowed at four client firms.
Instead, each firm must choose a different vendor for consulting than auditing services. An arrangement like this would be allowed under this independence rule.
The problem Hohl was referencing in his remarks is that these large client firms are now engaging in outsized financial transactions with each other that not only reflect STRATEGIC decisions each firm is making, possibly in part due to consulting services they utilize, but impose tremendous ACCOUNTING impacts on the firms, which will involve their auditor. With a requirement of pairwise separation of auditing and consulting WITHIN a firm with firms that are interlocked with EACH OTHER with hundred billion dollar deals, essentially all of their vendors for auditing and consulting are winding up in the same room, recreating the same conflicts of interest the independence rules were intended to eliminate.
It may take a minute or two but staring at that third diagram should eventually make it clear that with only four viable audit firms suitable for the purpose, there is no way the separation rule can be satisfied when all four of the firms become interlocked due to contracts involving hundreds of billions of dollars if they all use consulting services from these same firms (and they do). The problem cannot be solved by merely creating pair-wise deals and pretending that a ClientA-ClientB deal AND a ClientA-ClientC deal doesn't produce potential ethics concerns between the auditors of ClientB and ClientC.
Kurt Hohl's comments at the auditing standards conference explicitly identify this new problem then suggest PRECISELY the wrong solution to that problem – relaxing or eliminating the independence rule entirely. Hohl's comments are not emerging from a vacuum, either. They reflect a larger bias AGAINST nearly any modes of meaningful oversight over giant corporations. Hohl was selected to head this audit standards function within the SEC at a time when Republicans have been working to eliminate an entity called the Public Corporate Accounting Oversight Board (PCAOB) and fold its duties into the SEC. The PCAOB was also created as part of Sarbanes-Oxley in 2002 to conduct reviews of firms handling audits of public firms and investigate alleged rules violations by auditing firms. Legislation to eliminate the PCAOB was approved by both the House and Senate in the summer of 2025 only to be tossed at the last minute by an arcane rule hinging on the fact that the PCAOB doesn't actually spend government money to perform its roles (it uses fees collected from audit firms to fund its operations). No objective outsiders believe the purpose of this proposal to eliminate the PCAOB and shift its functions to the SEC was aimed at "eliminating duplication" and maximizing synergies. Those proposing the elimination want to remove the responsibility from an independently funded organization that is not subject to their influence into the SEC which they can influence to de-prioritize the work or eliminate it entirely.
Hohl's comments didn't create new policy, they merely linked a shorter sound byte to existing goals being worked by technology firms, auditing firms and others who think they would benefit from eliminating the friction imposed by these independence restrictions. Hohl's comments really boil down to this: Modern tech firms haven't just become too big to fail, they have become too big to AUDIT in the first place.
To be clear, Hohl was not publicly lobbying for the elimination of audits and quarterly reporting for publicly traded firms. However, his comments clearly state the SEC views its mission as aiding in the minimization or elimination of "roadblocks" for giant corporations rather than protecting the larger investor community by protecting the integrity of financial information regarding corporations. This mindset could not be more out of tune with current realities unfolding in financial markets. Consider the news since September of 2025.
On September 10, 2025, a sub-prime auto retailer named Tricolor filed for bankruptcy, triggering write-offs of $170 million at JPMorgan and $150 million at Barclays for debt those banks took on earlier in 2025. On September 28, 2025, automotive parts conglomerate First Brands filed for bankruptcy, leading to the discovery of a total of $6 billion in debt on its books, including $2 billion recently purchased by famed private equity firm Blackrock, who failed to discover that all of the collateral posted for the $2 billion it bought was promised to at least one other investor. On November 3, a Dallas based firm named Renovo filed for bankruptcy, leading to the discovery of at least $150 million dollars in worthless debt – held predominately by Blackrock -- and the closure of nineteen regional home remodeling firms the company had purchased since 2022.
These were failures of basic financial due diligence in the context of private corporations borrowing large sums of money from other private corporations and no players in these scams being worried in the short term about the underlying rot being discovered by quarterly financial reporting required of publicly traded firms. But these failures didn't just impact other private firms. JPMorgan and Barclays both lost hundreds of millions of dollars and they are publicly traded firms.
With this recent track record of financial meltdowns and accounting fraud, why would ANYONE, much less the person in charge of guiding audit policies at the SEC, suggest the solution to the challenge of mega-corporations wanting to do do mega-deals within each other that are indistinguishable from mergers (and fraudulent patterns of circular transactions) would be LOWERED expectations for auditing integrity?
As stated in the prior commentary on this blog on Private Equity, On Steroids, Everywhere, the legal advantages bestowed upon corporations are creating a feedback cycle in which corporations growing ever-larger are requiring OTHER already large corporations grow ever-larger as well to act as suppliers and partners. This is reducing competition in more sectors of the economy and distorting prices and supply, exactly as one would expect with monopolistic entities. An audit firm with 100 employees and $10 million in yearly revenue can no more realistically provide audit services for Microsoft than a regional hosting firm with even a million square feet of data center space can provide hosting to OpenAI. The solution to these problems of scale is not to allow all of the players in the ecosystem to continue getting larger. The solution is to break these firms up into smaller, less powerful entities. The solution is appropriate antitrust enforcement.
It's bad enough that the likelihood of meaningful antitrust enforcement under the Trump Regime Department of Justice is zero, except in cases where the firm in question somehow crosses Trump. It's worse when leaders of the Trump Regime SEC act to further weaken constraints on giant monopolies by volunteering that prior standards regarding clear separation of auditing and consulting functions are not compatible with current economic reality.
What is at stake here? Are debates about financial accounting and regulations just the business and political equivalents of "inside baseball" arguments about designated hitters or running within the base paths?
The business dealings alluded to by this SEC official currently total over one trillion dollars. In any world prior to 2025, few would look at a single transaction between two firms totaling $200 billion or $300 billion as a mere "sale" in the marketing department when that "sale" equates to a third (or one hundred percent) of the firm's market capitalization. That transaction is a major restructuring of the two firms involved in the deal, especially if the deal involves exchanges of stock. These $200 billion or $300 billion dollar deals are impacting not just the investors in the firms involved in the deal, they are grossly distorting the larger economy. They are creating contention for electricity from power grids and shifting costs to consumers. They are creating vast new demand for water for cooling for the acres of data center space being constructed amid areas affected by regional droughts. They are even spiking inflation in prices for commodity semiconductors like DRAM chips that, until 2025, have followed downward Moore's Law price patterns for fifty years.
These are not signs that these firms deserve yet more regulatory RELIEF. These are signs these firms merit not only more mere SCRUTINY but immediate, actual, aggressive antitrust mitigation. The reality is that no one in an actual position of regulatory or political power is calling for anything remotely approximating appropriate actions and it is likely the economy is only weeks or months away from the consequences of this corruption and inaction.
WTH
