Arguments Begin Thursday Over PCAOB Constitutionality

A federal judge will hear arguments Thursday in a lawsuit that attacks the Public Company Accounting Oversight Board (PCAOB) as unconstitutional.


The lawsuit, Free Enterprise Fund v. Public Company Accounting Oversight Board, challenges the way PCAOB members are appointed; the board’s ability to perform “executive branch functions”; and delegation of legislative powers to an independent organization. Oral arguments will be heard in the U.S. District Court for the District of Columbia.

The Free Enterprise Fund, whose leaders include conservative Mallory Factor and supply-side economist Arthur Laffer, says PCAOB members should be named by the White House with Senate review. The PCAOB violates separation of powers principles and lacks proper checks and balances, the group contends.

The board, created by Congress under the Sarbanes-Oxley Act (SOX) to oversee the auditing of U.S. business, polices the Big Four accounting firms: KPMG, Deloitte & Touche, Ernst & Young and PricewaterhouseCoopers (PwC). It must issue an annual inspection report for any accounting firm that audits 100 or more public companies.

The group's legal team is led by former U.S. independent counsel Kenneth Starr and Michael Carvin, a partner at the law firm of Jones Day. Starr wrote in Saturday’s Wall Street Journal: “In its rush to ‘do something’ about corporate scandals, Congress overstepped the bounds of its authority. It is time to call Congress back, both to help our economy and reaffirm that our constitutional system imposes clear limits on the government's urgent desire to ‘do something.’ Congress must be reminded that the ‘solution’ is at times worse than the problem.”

Jill "J.R." Labbe, deputy editorial page editor of the Star-Telegram of Fort Worth, said in an opinion piece last month that if the court agrees with Starr, “the entire act could go down because it doesn't have a severability clause.”

She added, “The likelihood of a wholesale scrapping of the act is somewhere between slim and nil — federal lawmakers, like most powerful people, rarely admit to mistakes. But they could save face by admitting that even our nation's founding document has been made stronger by judicious amendments.”

You may like these other stories...

Here's a CPA who truly walks the walk. On March 15, Frank Ryan, CPA, departed San Diego, California, with plans to be in Ocean City, Maryland, by July 2 to teach a course at the Maryland Association of CPAs’ (MACPA...
When Theodore J. Flynn first joined the Massachusetts Society of CPAs (MSCPA) in 1970, it was a different world and a different profession.  The "Big Eight" were still headquartered in Boston. Vietnam War...
Accountant Rickey Charles Goodrich had it a little too good. Many bean counters would kill to serve as financial guru to the likes of Pearl Jam. Goodrich was hired in 2005, and the following year, he became the CFO of Curtis...

Already a member? log in here.

Upcoming CPE Webinars

Oct 30Many Excel users have a love-hate relationship with workbook links.
Nov 5Join CPA thought leader and peer reviewer Rob Cameron and learn ways to improve the outcome of your peer reviews while maximizing the value of your engagement workflow.
Nov 12This webcast presents basic principles of revenue recognition, including new ASU 2014-09 for the contract method. Also, CPAs in industries who want a refresher on revenue accounting standards will benefit.
Nov 18In this session Excel expert David Ringstrom, CPA tackles what to do when bad things happen to good spreadsheets.