Long ago and far away (read: four years ago in a building roughly 12 miles from here), I wrote about the Free Enterprise Fund and the Nevada accounting firm of Beckstead Watts filing a lawsuit against the Public Company Accounting Oversight Board. The plaintiffs argued that the PCAOB, and by extension the Sarbanes-Oxley Act of 2002, is unconstitutional because the board's members are not appointed by the president with the advice and consent of the Senate.
After a series of rulings and appeals that did not go in its favor, the Free Enterprise Fund sought a writ of certiorari from the U.S. Supreme Court, and the court agreed to hear the case. The parties argued before the Supreme Court in December. Now, a final decision is imminent, according to Journal of Accountancy writer Matthew Lamoreaux. He says:
A decision is expected soon in ...a Supreme Court case that calls into question the future of Sarbanes-Oxley and the PCAOB....The current Supreme Court session's schedule runs through June 28.
So if the court decides the PCAOB is unconstitutional, what's next? Opinions on that vary. Some say not much will change even if all of Sarbanes-Oxley is declared unconstitutional because other rules and regulations have since been implemented that require transparency in internal controls. Such rules include SEC 17-4(a) or the Federal Rules of Civil Procedure that address discovery of electronically stored information.
Others say the chance of the court actually striking down the entire Sarbanes-Oxley Act is slim to none, especially since the Roberts court has already "shown a preference for narrow, incremental rulings." Gillian Metzger, who teaches constitutional law at Columbia Law School, told the Journal of Accountancy that Sarbanes-Oxley doesn't need a severability clause for the court to decide parts of the law can stand on their own.
Experts also suggest the court could give Congress time to fix the law before declaring it unconstitutional. This makes the most sense, in my opinion, but that doesn't mean that's how it will happen.