The Trusted Foreign Auditing Act of 2025 empowers the PCAOB to prohibit trading by companies headquartered in national security threat countries that use auditors potentially compromised by foreign government influence.
Elise Stefanik
Representative
NY-21
The Trusted Foreign Auditing Act of 2025 strengthens the Public Company Accounting Oversight Board's (PCAOB) ability to inspect accounting firms operating in countries that pose a national security risk. It defines and prohibits the use of "compromised auditors"—firms influenced by "covered countries"—in preparing required audit reports. Companies headquartered in concerning nations that use such compromised auditors may face trading prohibitions. Furthermore, the Act mandates public hearings when compromised auditors are involved in related proceedings.
New Audit Law Targets Firms 'Influenced' by Foreign Governments, Threatens Trading Ban for Companies
The Trusted Foreign Auditing Act of 2025 is all about tightening up who gets to audit companies listed on U.S. exchanges, especially when those auditors operate in countries the U.S. national security apparatus views with suspicion. Essentially, this bill gives the Public Company Accounting Oversight Board (PCAOB) a sharp new tool to check whether an accounting firm is too cozy with a foreign government before letting it sign off on financial reports. It introduces the concept of a “compromised auditor”—an office of a registered accounting firm that is directly or indirectly controlled, directed, or significantly influenced by a “covered country.”
Who’s on the Covered Country List?
This isn't about naming and shaming every nation. A “covered country” is defined specifically as any country the Director of National Intelligence (DNI) has recently flagged as a national security threat to the U.S. The DNI’s word carries a lot of weight here, determining which nations’ influence over audit firms will trigger these new rules (SEC. 2). For the average investor, this is supposed to mean less risk that a company’s books are being cooked or manipulated by a hostile foreign government.
The Real-World Hammer: Trading Bans
The biggest practical shift in this bill is the new penalty. If a company that is headquartered in a “country of concern” hires one of these newly defined “compromised auditors” to prepare its required audit report, that company faces a trading prohibition (SEC. 2). Think of it this way: if you’re a tech company based in a flagged nation and you use an auditing firm that the PCAOB suspects is being told what to do by that nation’s government, your stock could be pulled from the U.S. market. This isn't just a slap on the wrist; it’s a full market lockout, which hits the company, its employees, and its shareholders directly.
The Problem with 'Significantly Influenced'
While the goal of protecting audit independence is sound, the bill introduces significant vagueness. The definition of a “compromised auditor” hinges on terms like “directly or indirectly controlled, directed, or significantly influenced” by a covered country (SEC. 2). What exactly constitutes “significant influence” in this context? Is it hiring practices? Office location? Lease agreements? The PCAOB will have to establish clear, measurable lines here, and until they do, this subjectivity could lead to disputes and uncertainty for global accounting firms and the companies that rely on them. For a U.S. accounting firm with foreign offices, figuring out how to comply with this vague standard in a high-risk country becomes a massive, complex compliance headache.
Sunlight on the Oversight Board
Finally, the bill mandates a change to PCAOB hearing rules, which are typically private. Under the new rules, if a “compromised auditor” hired by a “covered issuer” is a party to a PCAOB hearing, that hearing must be public (SEC. 3). This is a move toward transparency, forcing those cases where national security concerns intersect with audit integrity out into the open. It means that when the PCAOB is investigating a firm potentially influenced by a nation flagged by the DNI, the public gets to see the process, which is a good check on the system.