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

Sarbanes-Oxley auditing board ruled unconstitutional (creative accounting protected by the Constitution)

WASHINGTON (Reuters) - The Supreme Court on Monday struck down part of a 2002 law that created a national board that polices auditors of public companies, ruling that it violated the constitutional requirement on the separation of powers among the branches of government.

The high court's ruling on the Public Company Accounting Oversight Board (PCAOB) could put pressure on Congress to revisit the Sarbanes-Oxley corporate reform law, opening it up for potential changes in the reporting duties of companies.

The court's mixed ruling held that the board violated the U.S. Constitution's separation of powers principle, but also held that the law does not violate the Constitution's appointments clause.

At stake in the case was how corporate America is audited and a key provision of the Sarbanes-Oxley corporate reform law adopted in response to the Enron and WorldCom accounting scandals early in the decade.

The ruling was a victory for the Free Enterprise Fund and a small Nevada accounting firm, which argued that the law unconstitutionally stripped the president of power to appoint or remove board members or to supervise their activities.

Board members are appointed by the U.S. Securities and Exchange Commission and can only be removed by the SEC for cause. The board, set up as a quasi-private agency, has the power to impose rules and to inspect and fine accounting firms.

The board is funded through fees it collects from public companies. It inspects thousands of auditors, including the Big Four accounting firms: Ernst & Young LLP, KPMG, PricewaterhouseCoopers and Deloitte & Touche LLP.

The Free Enterprise Fund and the accounting firm sued in 2006. A federal judge and a U.S. appeals court rejected the challenge.

The Supreme Court's majority opinion said the limits on the removal of board members violated the separation of powers requirement.

But the court also held that the unconstitutional provisions can be separated from the rest of the law.

(Reporting by Rachelle Younglai and James Vicini. Editing by Robert MacMillan)

Grandpa:
The Public Company Accounting Oversight Board (PCAOB) stated purpose is to 'protect the interests of investors and further the public interest in the preparation of informative, fair, and independent audit reports'. How about these salaries! The salary of the PCAOB's chairman is currently $556,000 per year, while the salaries of other board members are $452,000 annually.
Link to website

The Sarbanes–Oxley Act of 2002 set new or enhanced standards for all U.S. public company boards, management and public accounting firms. The bill was enacted as a reaction to a number of major corporate and accounting scandals including those affecting Enron, Tyco International, Adelphia, Peregrine Systems and WorldCom. These scandals, which cost investors billions of dollars when the share prices of affected companies collapsed, shook public confidence in the nation's securities markets.

It does not apply to privately held companies.

Not even the Supreme Court is Granchildren Friendly! They are concerned about the separation of powers on the enforcement side while Wall Street continues their "Band of Brothers" on a unified power front to assure their "mark-to-model" valuations.

What oversight is required when the country endorses creative accounting? FASB is changing their name to FAB given the fact standards no longer apply!!