US Supreme Court Invalidates Part Of Accounting Board (update from Prior Post)

By Brent Kendall and Fawn Johnson
WASHINGTON (Dow Jones)--A divided U.S. Supreme Court on Monday struck down some federal provisions that created a private regulatory body to inspect and discipline public-company accountants, but the decision doesn't dismantle the accounting board or invalidate the 2002 Sarbanes-Oxley Act as some critics would have liked.

The high court, in a 5-4 opinion by Chief Justice John Roberts, found fault with some parts of the Public Company Accounting Oversight Board, which was created as part of Sarbanes-Oxley to combat corporate accounting scandals in the wake of collapses at Enron and WorldCom.

Congress had given the five-member board, a not-for-profit corporation, broad regulatory authority over accounting firms that audit publicly traded companies.

Roberts said the structure of the accounting board violated constitutional separation-of-powers principles because it was too difficult for the president to remove board members.

"The president cannot take care that the laws be faithfully executed if he cannot oversee the faithfulness of the officers who execute them," Roberts wrote.

The court, however, refused to strike down the accounting board in its entirety, saying the board's mere existence didn't violate the Constitution.

PCAOB said it will continue to run all programs as usual, and no legislation will be needed to bring it in line with the Constitution. "We are pleased that the decision allows the PCAOB to continue without interruption to carry out its important mission of overseeing public company audits," said PCAOB Acting Chairman Daniel L. Goelzer.

Roberts said Sarbanes-Oxley "remains fully operative as a law." He said the unconstitutional provisions governing the board could be severed from the rest of the law.

The authors of the accounting law, in a joint statement, said "PCAOB provides essential protections to the more than half of American households that invest savings in securities."

"The decision from the Supreme Court adjusts the law in a way that allows the PCAOB to continue to ensure the integrity of public company audits," said former Sen. Paul Sarbanes (D., Md.) and Rep. Michael Oxley (R, Ohio).

Roberts said the Securities and Exchange Commission will now have the authority to remove board members at will. Previously, the SEC could only remove members for good cause.

"I am pleased that the court has determined that the board's operations may continue and the Sarbanes-Oxley Act, with the board's tenure restrictions excised, remains fully in effect," said SEC Chairman Mary Schapiro. "The PCAOB is a cornerstone of the Sarbanes-Oxley Act and serves a critical role in promoting investor protection and audit quality."

The accounting industry also applauded the ruling. "This is the least disruptive decision," said Center for Audit Quality Executive Director Cindy Fornelli. "We're pleased the court made it clear the PCAOB could continue to function....It's important for investors." Complete WSJ Article