The justices will hear oral arguments this fall over whether the audit firms' regulator —and the Sarbanes-Oxley Act — is constitutional.
The U.S. Supreme Court has agreed to review a case that questions the constitionality of the creation of the Public Company Accounting Oversight Board under the Sarbanes-Oxley Act. The justices will consider whether the existence of the PCAOB violates the Constitution's separation-of-powers principle.
Formed by Sarbox, which was enacted in 2002, the PCAOB is a nongovernmental entity that sets auditing standards and regulates and regularly inspects all accounting firms that review U.S. publicly traded companies' financials. The board's budget and processes are subject to review by the U.S. Securities and Exchange Commission, which also approves the appointment of its five board members. According to the lawsuit filed by the Free Enterprise Fund, however, the president has no power to intervene in anything the PCAOB does. And that makes it an anomaly among U.S. agencies.
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