Members of the Public Company Accounting Oversight Board may be breathing a sigh of relief that their organization has been ruled constitutional, but their opponents could decide to take their case to the Supreme Court.
A three-judge panel on the U.S. Appeals Court for the District of Columbia Circuit ruled in a 2-1
However, the plaintiffs, the Free Enterprise Fund and audit firm Beckstead & Watts, believe that an appeal is likely, either to the full appeals court or even the U.S. Supreme Court. "I am currently discussing all legal options with our firm's attorneys," said Beckstead & Watts managing partner Brad Beckstead in a statement.
The firm is drawing solace from the dissenting opinion in the case, which came from Judge Brett Kavanaugh, who formerly worked for Kenneth Starr's Office of Independent Counsel and helped write the Starr Report. Starr was also one of the attorneys who represented the Free Enterprise Fund in the case. "The two constitutional flaws in the PCAOB statute are not matters of mere etiquette or protocol," Kavanaugh wrote. "By restricting the president's authority over the board, the act renders this executive branch agency unaccountable and divorced from presidential control to a degree not previously countenanced in our constitutional structure."
His colleagues on the court disagreed, with Judge Judith Rogers arguing that ruling the PCAOB unconstitutional just because the president didn't directly appoint its members would endanger the independent status of agencies such as the Federal Trade Commission. She cited a case from 73 years ago, Humphrey's Executor v. U.S.
Nevertheless, the case does raise interesting constitutional questions that could well entice some of the Supreme Court justices to take it on. Kavanaugh called the case "the most important separation-of-powers case regarding the president's appointment and removal powers to reach the courts in the last 20 years."
Given the tenuous nature of some of the Supreme Court's close decisions in the last term and some of the justices' predilections, some of them may welcome the opportunity to place a stricter interpretation on the appointments clause and thereby strengthen the president's powers, depending on who the next president is, of course.
On the other hand, the PCAOB received strong support from many of the major accounting organizations and firms, even those that have felt the sting of the PCAOB's inspection reports. In the end, a ruling against PCAOB would also mean a ruling against Sarbanes-Oxley, which could have an unwelcome effect on investor confidence in not only accounting firms, but the market as a whole.
