After the U.S. Supreme Court decided Monday that the portion of the Sarbanes-Oxley Act that set up the Public Company Accounting Oversight Board was unconstitutional because the Securities and Exchange Commission could only fire board members for cause, I had the chance to speak with Center for Audit Quality executive director Cindy Fornelli about how the ruling would affect the audit industry.
Fornelli said the Center for Audit Quality was pleased with the ruling, primarily because the court made a point of saying the PCAOB didn't have to stop operating as long as the SEC had unlimited authority to fire board members. She said:
From the profession's perspective, it's business as usual. We'll still operate under the authority of the PCAOB and the SEC.
She also noted the decision is not likely to prompt Congress to make substantial changes to the remaining provisions of Sarbanes-Oxley. Fornelli said:
Certainly, Congress did not feel compelled, nor should they have, to limit themselves in considering aspects of financial regulation or accounting and auditing regulation based on the Supreme Court case. Where they felt compelled to take on a particular aspect of Sarbanes-Oxley, they did that outside of the context of the case, so I don't anticipate that the case itself will in any way influence Congress' decisions on that.
But as much as Fornelli and the CAQ are pleased with the court's decision, others are sorely disappointed. For example, in a Computerworld article on Tuesday, writer Niel Nickolaisen said the Supreme Court didn't even touch the real issue in the case. He described that issue like this:
[M]y biggest beef with SOX has always been how the now-unconstitutional Public Company Accounting Oversight Board let the auditing firms develop their own standards for what constituted "SOX compliance".
Nickolaisen says it was the absence of a single set of auditing standards that cost companies so much in the early years of complying with Sarbanes-Oxley.
Unfortunately for Nickolaisen and others who were hoping to see substantial changes in Sarbanes-Oxley result from this case, that's not what this court chose to do.