Sarbanes-Oxley Law May Be Reshaped by U.S. Supreme Court Clash

Sarbanes-Oxley Law May Be Reshaped by U.S. Supreme Court Clash - 12/4/2009

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Sarbanes-Oxley Law May Be Reshaped by U.S. Supreme Court Clash
Greg Stohr and Ian Katz

Bloomberg. December 4, 2009
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EXCERPT: 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 Corp. and WorldCom Inc. collapses. The justices on Dec. 7 will consider a challenge to one of the law’s central features: creation of the Public Company Accounting Oversight Board 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. “When Congress enacts legislation to fix the board, that will provide a vehicle for opponents of the current Sarbanes- Oxley to propose amendments,” said Michael Carvin, a lawyer who will argue the case against the board for Beckstead and Watts LLP and the Free Enterprise Fund. 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 LLP. 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 oversight, challengers say that isn’t enough. Board members are appointed by the SEC, not the president, and are removable only “for cause.”

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