By: Mark Tarallo
On December 7, the United States Supreme Court heard oral arguments in a case that called into question the validity of the Public Company Accounting Oversight Board (PCAOB), where the ultimate decision could have far-reaching consequences for some of the reforms enacted pursuant to the Sarbanes-Oxley Act of 2002. The case, Free Enterprise Fund v. Public Company Accounting Oversight Board, Docket No. 08-861, raises a number of questions about the constitutionality of the PCOAB.
The PCAOB is a private organization that establishes accounting standards, takes enforcement actions, and registers public accounting firms to work on public companies. The Board was created pursuant to the Sarbanes-Oxley Act to provide stronger oversight to public accounting firms, to combat a perceived weakness in the self-regulatory framework that led to cases involving significant financial fraud such as Enron and World Com.
The case was brought before the Supreme Court by a group of plaintiffs who argued that the PCAOB violates the separation of powers clause of the United States Constitution, on the grounds that it is an “executive branch” agency over which the President does not have direct control.
This case is important because of the potential for changes to the broader Sarbanes-Oxley framework if the PCAOB is determined to be unconstitutional. In that event, Congress would need to reestablish the PCAOB, and a number of other provisions of Sarbanes-Oxley may be subject to revision as part of that process.
A decision on the case is expected in spring, 2010.