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PCAOB12/4/09 - A U.S. Supreme Court case may prompt Congress to scale back the 2002 Sarbanes-Oxley law, the measure that tightened oversight of financial disclosure after the Enron and WorldCom collapses. The justices will consider a challenge to one of the law’s central features: creation of the Public Company Accounting Oversight Board (PCAOB) as the auditing industry’s watchdog. A Nevada accounting firm and a small-government advocacy group say the board lacks the presidential control that the Constitution requires for executive branch agencies. A decision striking down the PCAOB would leave it to Congress to re-establish the board with more oversight, setting up a legislative fight that might sweep in other aspects of Sarbanes-Oxley. Lawmakers might propose amendments to shield banks from fair value accounting requirements, which require assets to be marked down to reflect market prices, or even to cut board members’ pay. Congress already is considering exempting small companies from audit requirements. The PCAOB, which replaced a system of self-regulation by the accounting profession, is a private organization that performs government-type functions. The board has issued a series of accounting standards and taken 25 enforcement actions, imposing a $1 million fine on Deloitte & Touche. The PCAOB draws up its own budget, sets board member salaries and funds its work by imposing fees on public companies. Although all those actions are subject to Securities and Exchange Commission (SEC) oversight, challengers say that isn’t enough. Board members are appointed by the SEC, not the president, and are removable only “for cause.” The SEC is an independent agency whose members the president can’t remove without cause. The Supreme Court said in 1935 that independent agencies are constitutional even if the president has only limited power to fire their leaders. That ruling spawned what has become known as the fourth branch of government. Supporters of the board say it fits into a 70-year SEC practice of using private self-regulatory organizations, such as the New York Stock Exchange (NYSE) and the Financial Industry Regulatory Authority (FIRA), to help oversee companies and markets. Like the PCAOB, those organizations are supervised by the SEC. Even if the justices find a constitutional problem, they could stop short of striking down the PCAOB and instead could simply increase the SEC’s power to remove members. Should the justices force congressional action, lawmakers already are contemplating other changes to Sarbanes-Oxley. Representative Scott Garrett of New Jersey, the top Republican on the subcommittee that oversees the SEC, said he would look into the requirement that top company officials sign off on financial statements. Lawmakers also might question PCAOB salaries, now $672,676 a year for the chairman and $546,891 for other board members, compared with $400,000 for President Barack Obama and $174,000 for members of Congress. |
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