Sarbanes-Oxley, PCAOB Survive Supreme Court Scrutiny

Lora Bentley
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Sarbox Compliance: Benefits Beyond the Checkbox

 

In a 5-4 decision, the U.S. Supreme Court ruled the Public Company Accounting Oversight Board, as it was originally structured, did not have enough accountability. Previously, the Securities and Exchange Commission could fire PCAOB members only for cause. The court determined the SEC instead should have "unfettered power" to fire the board's members, Bloomberg reports. Otherwise, there's no real oversight by the president, which the U.S. Constitution requires.

 

Justices Clarence Thomas, Samuel Alito, Anthony Kennedy and Antonin Scalia joined the majority.

 

Defending the PCAOB, the government argued that the SEC does have "comprehensive control" over what the board does, but apparently that wasn't quite enough for the high court. U.S. Solicitor General and Supreme Court nominee Elena Kagan argued the PCAOB's case. As the decision was handed down, her confirmation hearings were under way in the Senate.

 


Justice Stephen Breyer took an opposing view, noting in his dissent that the majority's decision would call into question the authority of other government agencies. He said the ruling "will create an obstacle, indeed pose a serious threat, to the proper functioning of that workable government that the Constitution seeks to create." Justices Ruth Bader Ginsburg, Sonia Sotomayor and John Paul Stevens also dissented.

 

In a statement issued after the decision, the Center for Audit Quality Executive Director Cindy Fornelli said:

The CAQ is pleased that the U.S. Supreme Court's decision will allow the continued operation of the Public Company Accounting Oversight Board (PCAOB). This narrow decision clearly severs the PCAOB board member removal process from the rest of the Sarbanes-Oxley Act... The decision will prevent any disruption to the public company audit oversight process, a critical factor in the continued strength and stability of our capital markets.

The decision also reinforces the importance of transparent corporate controls.

 

Though the decision means Sarbanes-Oxley and its compliance requirements are still in place, it is not completely unexpected. And if Congress wants to significantly amend Sarbanes-Oxley in light of the court's decision in this case, Congress will no doubt do so, just as it is overhauling the country's financial regulatory system.



Add Comment      Leave a comment on this blog post
Jun 30, 2010 12:22 PM John Kelly John Kelly  says:

I agree, the Supreme Court's ruling will probably have little to no effect on how companies actually manage their risk with respect to financial reporting. 

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