For reasons known only to Mercury, the god of communications, this post from Thursday was not fed to most subscribers. So this re-posting, with apologies to anyone finding or receiving it a second time.
When I went to make breakfast on Tuesday, I found a tempest swirling in my teapot: the report that the United States Supreme Court is to resolve a constitutional challenge to the law establishing the Public Company Accounting Oversight Board – created by the post-Enron legislative spasm of the Sarbanes/Oxley law of 2002.
This is an abstruse squabble over the scope of the presidential authority to appoint government employees classified, without any apparent irony, as “inferior officials.”
Paying almost no attention, the mainstream American media have their priorities right, putting their focus instead on the Court’s agreement the same day to review the criminal conviction of corporate kleptocrat Conrad Black.
The news-consuming public, in other words, understandably has less interest in whether a bunch of rascals are to be thrown out, than if one should be thrown in.
I’m not generally one for wagering, for reasons I’ve spelled out – here – life already being sufficiently full of risks and hazards. But the easiest signal of the high court’s acceptance of the PCAOB’s legitimacy would have been to leave standing the lower courts’ orders. So it is a decent prediction that some time in next year’s term, the axe will fall.
And then?
And then will come the kind of grandstanding that Washington does so well. Led in the Senate by Chris Dodd (D-Conn.), chairman of the Banking Committee, and in the House by Barney Frank (D-Mass.), chairman of the Committee on Financial Services, the elected mob – of whom humorist Will Rogers sagely observed that “no man’s purse is safe while the legislature is in session” – will serve up a new kind of bail-out.
Which is, they will resuscitate the old agency in a new guise, only this time arrayed in bells and whistles reflecting their politicized reaction to the economic turmoil lately inflicted on us all.
And where will the vitally-interested accounting profession figure?
Historically, the high point of their influence lay in securing the franchise of privately supplied assurance, under the audit requirements of the securities laws of 1933 and 1934. In the following three-quarter century, sadly, the degree of attention and respect given to the auditors in the shaping of their regulatory fate has been like that in the research into shark feeding, as given to the food.
Because the Democrats control both houses of Congress and have their rock-star in the White House, the “appointment authority” issue will be repaired with the legislative equivalent of a piece of duct tape or a whack with a wrench. Making it a total non-event, the fix-up will include a wholesale re-adoption and ratification of everything wrought by the then-defunct PCAOB, so the transition will be seamless and invisible – turning the entire affair into little more than an ego exercise for those angling to get their names into the law case reports.
It’s necessary to remember that the Supreme Court’s power runs only to the narrow questions offered. It will not do a qualitative assessment of all the mischief since Sarbox was enacted – not answering, for example, the question that could be reasonably asked by, say, the battered investors in Bear or Lehman or Merrill or Citi or AIG: “Over the last seven years, has the PCAOB made the world of financial reporting and assurance a better place?”
Which means there is nothing to be served by trying to pick a winning side in this punch-up: there isn’t one, in any way that matters.
If adult perspective prevails, the accounting profession will resist the lure of friend-of-court advocacy, saving itself both large legal fees and whatever amity it might salvage for the lawmakers’ debate to come.
For there is now a window, of perhaps six to nine months, in which a blueprint might be developed for the successor agency to be enabled when the Supremes pull the PCAOB’s plug.
Avoiding the post-Enron stampede that flattened all before it in the rush to Sarbox – footnote below -- the accountants along with whatever friends they can muster have the chance to organize in support of a coherent and achievable structure – here.
Namely: federal-level chartering of auditors of US public companies could be combined holistically with standard-setting, oversight, inspection and discipline -- along with investor protection including insurance that would be industry-funded but government-backed, to relieve the firms’ current “survivability” issue – namely, the deadly overhang of life-threatening litigation exposure.
Ambitious – yes, surely. But Dodd and Frank will have their law-drafting pencils sharpened anyway. The opportunity to write on a blank page is too good for the profession to waste.
Note: As I wrote back in July
2002 about the Senate’s passage of Sarbox, “any legislation receiving
the bipartisan margin of 97-0 is bound to be fundamentally defective.”
You’ll have to trust me, though; as the International Herald Tribune for whom I was then writing in Paris moves closer to full absorption by its parent, the New York Times, its archive has somehow disappeared from internet accessibility – here.
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