The US Supreme Court yesterday heard a case that could determine the future of America's auditing board, created on the back of the Enron accounting scandal in 2001.
The Public Company Accounting Oversight Board was legislated by the Sarbanes-Oxley Act in an effort to hold auditors of public companies accountable in a bid to restore confidence to a shaken capital market.
The case - Free Enterprise Fund and Beckstead and Watts versus The Public Company Accounting Oversight Board - revolves around the constitutionality of the PCAOB and could set in motion drastic changes to the board if justices at the Supreme Court rule in the petitioners' favour.
Beckstead and Watts is a small Nevada-based accounting firm which is bringing the case against the PCAOB after it challenged the board's inspection findings. The Free Enterprise Fund is a conservative activist group. Both are bringing the case on the PCAOB on the grounds that because it doesn't answer to the US president it does not adhere to the US constitution's 'separation of powers'.
'The board is unique among federal regulatory agencies in that the president can neither appoint nor remove its members, nor does he have any ability to designate the chairman or review the work product, so he is stripped of the traditional means of control that he has over the traditional independent agencies,' Michael Carvin told the court, acting on behalf of the petitioners. General Elena Kagan on behalf of the United States respondents, argued that because the US president has control over the Securities and Exchange Commission, which oversees the PCAOB, the president has control of the PCAOB too. She said: 'The president has constitutionally sufficient control over the SEC. The SEC has comprehensive control over the accounting board, therefore the president has constitutionally sufficient control over the accounting board.' The case continues with a decision not expected until the summer next year.
'The board is unique among federal regulatory agencies in that the president can neither appoint nor remove its members, nor does he have any ability to designate the chairman or review the work product, so he is stripped of the traditional means of control that he has over the traditional independent agencies,' Michael Carvin told the court, acting on behalf of the petitioners. General Elena Kagan on behalf of the United States respondents, argued that because the US president has control over the Securities and Exchange Commission, which oversees the PCAOB, the president has control of the PCAOB too. She said: 'The president has constitutionally sufficient control over the SEC. The SEC has comprehensive control over the accounting board, therefore the president has constitutionally sufficient control over the accounting board.' The case continues with a decision not expected until the summer next year.