In the classic satirical publication Mad, the editors regularly skewered various businesses with parodies of what really went on behind closed doors. In one, a bellman informed the front desk of a resort that the air conditioning in a guest room had broken down and the temperature was now a sweltering 95 degrees. The front desk instructed him to inform the guests that their room now included a sauna, and to double their rate.I'm often amazed how many times I've seen this scenario played out real life - spinning adversity into a cause. As evidence, consider this situation: A small Las Vegas-based CPA firm, Beckstead and Watts, has partnered with the anti-tax lobbying concern the Free Enterprise Fund and libertarian think tank the Competitiveness Enterprise Institute, to challenge the "constitutionality" of the Public Company Accounting Oversight Board by filing a civil suit against the accounting watchdog. At the heart of the matter is the method of selecting the five members of the PCAOB, which the plaintiffs claim violates the Constitution.
The suit has its roots in a white paper released in October and bannered by the rather apocalyptic title, "The Public Company Accounting Oversight Board: An Unconstitutional Assault on Government Accountability."
The board was set up in 2002 as a private, nonprofit entity, which is funded not by taxpayers, but rather by corporate fees, with the members selected by the Securities and Exchange Commission - the primary point of contention. The authors claim that the appointments clause requires senior federal officials to be named by the president and confirmed by the Senate, while the president, the courts or a department head may pick "lesser officers."
The parties involved in the suit claim that it's bad law to separate government responsibility from public accountability. In other words, the president can't hire or fire them.
What's really going on here? Answer: A not-so-veiled strategy to peel away the mandates of Sarbanes-Oxley.
But first, a little background.
While the plaintiffs have said that other accounting firms may join the suit, the one that did, Beckstead and Watts, was, not surprisingly, on the business end of less-than-complimentary inspection report by the PCAOB. In a report released in September, the board examined 16 of the firm's 61 public client audits and, in eight of them, identified "deficiencies of such significance that it appeared to the inspection team that the firm did not obtain sufficient competent evidential matter to support its opinion on the issuers' financial statements."
Nevertheless, the suit conveniently comes at a time of swelling opposition to SOX - particularly from small filers, who have consistently complained about the cost in both dollars and human capital of SOX compliance.
But if any doubt lingers about the true intention of this legal circus, read between the lines in this paraphrased statement from the lead counsel, who intimated that if they were successful in the lawsuit, the action could open the door to "revise" the law in other ways.
This is a suit that could drag on for years.
But hey, I'm all for the democratic system and majority rule. We'll just poll about 25,000 Enron or WorldCom shareholders and gauge their opinion on a SOX rollback or whether the PCAOB is unconstitutional. Trust me, that would take considerably less time.
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