Sarbanes-Oxley and the PCAOB: The Supreme Court's Own Goal

On this last Monday there were two non-events, both with heavy political overtones:

First was the announced resignation of Jean-Pierre Escalettes, president of the French soccer federation, after Les Bleus’ disgraceful crash out of the first round of the World Cup with two losses and a draw.

Second, by a five-four vote (here), the United States Supreme Court upheld all significant aspects the Sarbanes-Oxley law of 2002 and the structure and operation of the Public Company Accounting Oversight Board, save only for the means of removal of PCAOB members.

There was always something strained and artificial about the constitutional attack mounted by a dinky accounting firm and an anti-Sarbox advocacy organ, raising points of eye-crossing abstraction about the scope of presidential power to appoint and remove subordinate officials.

So perhaps not surprisingly, the Court’s constipated decision is in kind – leaving entirely in place the law, the agency and its members, and satisfying nobody except court scholars perched in the highest of ivory towers.

Because, for all the anticipatory sound and fury --

• There is this much disruption of the PCAOB’s business: None.
• There is this much need for legislative re-visiting of Sarbanes-Oxley: None
• There is this much likelihood that, with Congress on its way to summer recess and mid-term election season around the corner of the calendar, there is any political appetite to take up the multiple short-comings in the present scheme for the regulation of the delivery of accountancy services to public companies: None.
  

For completeness, however, although the nature of the status quo has been righteously endorsed as robust, across the spectrum of the satisfied – from the Sarbanes-Oxley authors themselves (here) to the lobbying arm of the large accounting firms (here) to the head of the increasingly marginalized AICPA (here), to the SEC chairman herself (here) –

• Eight years and billions of dollars down the Sarbox drain, the amount of demonstrably beneficial deterrent effect on the global financial crisis and the performance of the principal actors: None.
• The extent to which the cries for revisions in the PCAOB’s remit or ability to act effectively in relation to the global market for useful and valuable audited financial information (see, e.g., my friends Francine McKenna and David Albrecht) have any chance of achieving results: None.
• The probability that rational heads will constructively address the existential crisis facing the survivability of the Big Four’s franchise of privately-provided assurance to global-scale companies, ahead of the catastrophic collapse of their business model: None.

Scholars of the Supreme Court’s deliberations will debate endlessly the nuances of its powder-puff result. Meanwhile the conversations amongst the Court’s majority wing can be re-constructed thus:

“We can’t let this law stand. When the Constitution was written, independent auditors hadn’t even been invented. This is not the crystalline path of our gun-control logic (here), from muskets in the militia to Uzis in Starbucks.”  

“No, but if we trash the whole statute, just think of what Chris Dodd and Barney Frank might legislate in its place, that we might just have to live with.”

“Right. Scary. And our Wall Street friends are living just fine with an agency that is toothless and clueless.”

“So if we do as little as possible, it may not resemble intellectually honest conservative orthodoxy, but it might just sell as restrained and reasonable.”

“You’ve got my vote, Chief. But only because we can’t bring back the guillotine.”

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Comments

[David Albrecht]

Jim,

Fine post, my friend. Obviously you received the same bootleg recording of SCOTUS deliberations I did. Your transcription at the end of your post is word-for-word dead-on.

Dave Albrecht