Is the PCAOB on the ropes?
Apparently, the Public Company Accounting Oversight Board may be on life support: the Supreme Court has granted cert on a case challenging the constitutionality of the PCAOB on the basis that it was established in contravention of the separation of powers because the President does not have direct appointment and removal power over the members of the PCAOB. There is an article in the Washington Post today describing the current state of play. But really, how much do we care about the PCAOB anyway? Probably not much, in and of itself, unless you have close personal friends in the accounting profession. However, the PCAOB was established as part of SOX and, while it's easy to see a fix for Congress to address the constitutional issue were the USSCT to strike down the provisions in question, commentators are wondering out loud whether that would invite a broader assault on other SOX provisions, especially by the anti-SOX 404 lobby: "If the oversight board were declared unconstitutional, it would not be difficult for Congress and the SEC to correct the defects, said Georgetown law professor Donald C. Langevoort. But if Congress were forced to revisit the legislation, the result could be a legislative free-for-all for interest groups, including those seeking to change other aspects of Sarbanes-Oxley, said Columbia law professor John C. Coffee. 'As a practical matter, once this goes back to Congress' -- if it does -- 'it may be irresistible for the Congress to re-examine the whole thing,' said Christian G. Vergonis of Jones Day, who represents plaintiffs in the case."
And there are two opinion pieces on the topic in the WSJ today. The first argues that SOX has gone too far and done much harm, yet protests that it didn't go even further and regulate the rating agencies: "it did nothing to detect problems with the ratings and valuation of subprime mortgaged-back securities." The second, by Kenneth Starr and Viet Dinh, who represent one of the plaintiffs in the case, call the PCAOB "an obstacle to President Obama's success" and cite a study by that unlikely couple, the Brookings Institution and the American Enterprise Institute, which "found that all of Sarbanes-Oxley's provisions – mostly enforced by the PCAOB – have cost the U.S. economy more than $1 trillion in direct and indirect costs." They further argue that "since it was created by Sarbanes-Oxley, the PCAOB hurt legitimate entrepreneurial companies by stretching the term 'internal control' in Sarbanes-Oxley's section 404 to company minutiae that had no relevance to investors…." (Possible merits of the argument aside for one moment, is it just me or has your irony meter also gone haywire to read complaints by Kenneth Starr about the wasteful expense of focusing on "minutiae" that have "no relevance" to anyone….)
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