Sarbanes-Oxley Unconstitutional? The Supreme Court to Decide
by Thomas Derricotte
Do some Supreme Court justices harbour doubts as to the constitutionality of Sarbanes-Oxley?
That’s what some are suggesting since the High Court agreed to hear a challenge to the 2002 law. The original case (Free Enterprise Fund v. Public Company Accounting Oversight Board) was originally rejected by the US Circuit Court of Appeals of Washington DC by a vote of 2-1. This willingness to hear the case is somewhat unusual as this has been the only ruling and no conflicting court decisions exist. Since this doesn’t fit the typical profile of a case that reaches the Supreme Court, the question is raised as to the particular interest by the justices.
The Free Enterprise Fund (FEF) is a pro-business conservative organization that promotes economic growth, lower taxes and limited government. The FEF contends that the Public Company Accounting Oversight Board (PCAOB) violates the constitutionally mandated separation of powers. The members of the PCAOB are appointed by the SEC (an independent federal agency) and therefore are not selected or able to be removed by the President. Further, the PCAOB is funded by fees paid by publicly traded companies and their budget is not controlled by congress. The PCAOB power is therefore improperly unchecked, as per the argument presented by the FEF.
While adjusting the structure of how the PCAOB members are selected would be relatively easy to fix by Congress, the threat to the overall law is that declaring even a piece of the law unconstitutional would open up the potential for the entire legislation to be reviewed and revised. With the FEF claiming that total Sarbanes-Oxley compliance costs for publically traded companies run $35 billion a year and the current difficult economic climate, Congress may be open to hearing arguments for further refinement of the law from various special interest groups.
But don’t through out your documentation just yet. There is a long way to go before the next chapter of this story is written.
The case will be available for review by the Supreme Court during their next term starting in October. Stay tuned for updates.
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This article written by Thomas Derricotte, a CPA with over 15 years experience in internal audit and with Sarbanes-Oxley and is the owner of www.BeatSox.com.
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