The Public Company Accountability Oversight Board hailed a decision by an appeals court that upheld its constitutionality.
The U.S. Court of Appeals for the District of Columbia Circuit held that the manner in which the organization's board members are appointed and overseen under the Sarbanes-Oxley Act is constitutional. The decision was split 2-1 among the judges, with Judge Brett Kavanaugh dissenting.
The court said the law creating the PCAOB did not encroach upon the Constitution or violate the separation of powers clause.
The Free Enterprise Fund and a small audit firm, Beckstead & Watts, which had been faulted by the PCAOB in 2004 for some of its audits, filed suit in 2006 against the board. They claimed that the way PCAOB members were appointed by the SEC violated the Constitution, which gives the president the power to make appointments with the consent of the Senate. They plan to appeal the decision.
"The court's opinion is consistent with the position taken by the PCAOB, the U.S. government through the Department of Justice and the Securities and Exchange Commission, seven former SEC chairmen, the Council of Institutional Investors, TIAA-CREF, AFL-CIO, and several public employee pension funds," the PCAOB said in a statement.
Peter Iannone, shareholder at Mayer Hoffman McCann, said he didn't believe that the suit against the PCAOB was widely supported by other accounting firms. "I didn't see the Big Four jump in behind it," he said. "I don't think it was a largely held opinion in the profession. I've never heard anybody else in the industry speak out against how the PCAOB was formed and how it was structured."
Grant Thornton CEO Ed Nusbaum recently spoke in favor of preserving the PCAOB in an interview.
"Personally I think it's a mistake to do away with the PCAOB," he said. "The PCAOB is painful at times. We don't always agree with their comments. They're tough. Sometime they even bring firms up on charges. I think they'll continue to be aggressive, so it's not like we love them. But, on the other hand, you need some oversight. They seem to be doing a pretty good job at that, and I think it would be a mistake to get rid of them because then there's no regulator."
An audit organization commended the ruling. "The Center for Audit Quality believes the ruling will benefit the stability of our capital markets," said CAQ executive director Cindy Fornelli in a statement. "We re-affirm our dedication to audit quality and our strong support of the goals of the Sarbanes-Oxley Act."
