Now What? Supremes Declare PCAOB Board Appointment Process Unconstitutional
By David Feldman at 28 June, 2010, 7:35 pm
Greetings from Toronto and the Reverse Merger Conference. We anticipated a decision this week, and now it has happened. The US Supreme Court today ruled that the process by which Board members of the Public Company Accounting Oversight Board, which registers and audits every accounting firm that serves as auditors for US public companies, are appointed is unconstitutional.
When I told some attendees of a cocktail event this evening who had not heard, the reaction was simply, “Wow.” The subheading from accouting blog www.goingconcern.com: “Auditors’ Lives Will Continue to Suck.” Most importantly, as I understand it, the Board will continue to exist and perform its function.
The accounting blog quoted Justice Roberts’ majority opinion explaining why the appointment of Board members at PCAOB must be by the President, but Sarbanes-Oxley set up that the SEC appoints Board members. “The President cannot ‘take Care that the Laws be faithfully executed’ if he cannot oversee the faithfulness of the officers who execute them. Here the President cannot remove an officer who enjoys more than one level of good-cause protection, even if the President determines that the officer is neglecting his duties or discharging them improperly. That judgment is instead committed to another officer, who may or may not agree with the President’s determination, and whom the President cannot remove simply because that officer disagrees with him.” The dissent focused on the need for protections in the Sarbanes-Oxley Act.
So PCAOB (some call it “peekaboo”) continues to function while Congress “tweaks” the law to make it work. I’m wondering how easy it is going to be to get that done. Might some use this opportunity to try to get rid of the Board and hold up conofrming legislation? Most auditors I know are not the biggest fans of PCAOB, but then who would like someone whose job it is to find out how you are doing your job badly. Stay tuned.
Hi David,
I was just curious if you’ve heard anything new regarding DTC eligibility for “shell” companies. I’ve heard that some brokers are willing to move forward with the application process in exchange for a $5-10k fee.
Thanks!
Eric, I have been part of a group working with the SEC to address a variety of issues with DTC. There have been a suddenly much larger variety of instances in which DTC eligibility has been denied, in particular when a Pink Sheet or OTC Bulletin Board company is looking to “uplist” to NYSE Amex or Nasdaq. We hope to address this in the very near future, but no major new developments yet.
David