The Sarbanes-Oxley Act (SOX), and its oversight body, the PCAOB (Public Company Accounting Oversight Board), has won a major victory over those parts of US industry and government seeking to have it repealed, or significantly weakened. Last Wednesday, in a 14 page judgement, Judge James Robertson, a US District Court judge dismissed a lawsuit challenging the constitutionality and legality of Sarbanes-Oxley's creation of a separate body to oversee the accounting industry.
In this suit, which claimed that the PCAOB creation was a violation of separation-of-powers principle and Appointments Clause of the Constitution, the plaintiffs were attempting to force the Securities and Exchange Commission (SEC) to return to Congress for a new act. Most US Congressional Acts have a "severability" clause in them which allows Congress to change part of an act – however, SOX does not, and, had part of it been ruled illegal, Congress would have been forced to replace the entire act. Judge Robertson said that the plaintiffs' challenge presented "nothing but an hypothetical scenario of an overzealous or rogue PCAOB investigator".
The suit was brought by Beckstead & Watts LLP, a Nevada accounting firm, supported by a number of industry groups, including the Free Enterprise Fund, which, in a press release, stated: "The Sarbanes-Oxley Act is onerous and burdensome. It is also deeply unconstitutional. With all respect to the District Court, we will continue to press our important cause in the Court of Appeals and the Supreme Court."
In a separate report late last week, the PCAOB confirmed discussions with regulators in Japan, Korea and China regarding cooperation in the oversight of company auditors. PCAOB Chairman Mark Olson said "I am encouraged that increasing numbers of countries are taking steps to enhance auditor oversight. As indicated earlier this month in connection with my discussions on cooperation with the European Commission, the PCAOB is considering further policy guidance regarding its reliance on non-US regulators. Our discussions this past week with our Asian counterparts were especially informative and helpful in this regard. The PCAOB intends to consult with these and other key jurisdictions around the world as we develop our policy guidance."
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