US lawmakers will consider potential changes to the Sarbanes-Oxley Act of 2002 that could overhaul the board appointed to oversee public corporations' financial practices and lead to altered requirements for future audits.
The US Supreme Court will hear arguments for and against the constitutionality of the oversight board established to monitor public company financial activity as part of the Sarbanes-Oxley regulation.
The Sarbanes-Oxley Act was created and enacted into law partly in response to corporate accounting scandals such as Enron and WorldCom. The regulatory standard set out to reduce such fraudulent financial activities and provide an oversight mechanism for public companies.
Part of the law includes the establishment of the Public Company Accounting Oversight Board (PCAOB), which consists of five members appointed by the Securities and Exchange Commission (SEC).
The arguments to be heard this week relate directly to the PCAOB. While set up to regulate financial accounting at companies, those opposed to the board's powers argue that because its members are not appointed by the president, the board's control is unconstitutional based on the country's tenets of three branches of government.
The challengers to the law say that the PCAOB lacks the presidential control required for executive branch agencies because the five members are appointed by the SEC, which doesn't fall under presidential powers. As a private agency in essence, the PCAOB is able to act as a government authority, which the Free Enterprise Fund believes to be unconstitutional.
It is unclear if a closer look at Sarbanes-Oxley would lead to tighter or looser controls on public companies. According to reports published by Rueters, Congress is considering exempting small companies from audit requirements, but reports also suggest that the PCAOB could become responsible to inspect auditors of brokerages, considering the Bernard Madoff investment scandal.
Lawyer Michael Carvin represents the Free Enterprise Fund and is quoted by Bloomberg as saying, "When Congress enacts legislation to fix the board, that will provide a vehicle for opponents of the current Sarbanes-Oxley to propose amendments."