Court Affirms Rulemaker’s Constitutionality

An August court ruling on a littleknown case averted a different sort of accounting crisis, one that would have jeopardized the authority of the body that regulates public accounting firms.

A federal appeals court ruled that the Public Company Accounting Oversight Board is constitutional. The ruling rejects a claim that the creation of the PCAOB, which dispenses rules for auditors including the Big Four, violates the Constitution’s separation-of-powers principle.

PCAOB Board of Directors

 

Chairman

Mark W. Olson

 

Members

Daniel L. Goelzer

Bill Gradison

Steven B. Harris

Charles D. Niemeier

Nevada accounting firm Beckstead & Watts and The Free Enterprise Fund, a free market advocacy group, filed the lawsuit, arguing that the PCAOB’s structure and operation, including its freedom from Presidential control and the method by which its members are appointed, are unconstitutional giving it “massive unchecked powers,” according to the complaint.

Judge Judith W. Rogers ruled that the board members in question were not high ranking enough to require a Presidential appointment. The five SEC commissioners, appointed by the President, are sufficiently able to govern the board without the need for the President to appoint every member of the PCAOB, she wrote.

In his dissenting opinion, Judge Brett M. Kavanaugh argued that the structure of the PCAOB is in violation of the Constitution. “Our power system was separated into three branches,” he says, “not concentrated in the legislative branch alone.”

Kenneth Starr, dean of Pepperdine University’s School of Law, who has worked on the case, believes that the decision is wrong. “[PCAOB] was a hasty response. Congress wanted unchecked power, not constant supervision,” he says. Starr says the case could be appealed to the Supreme Court: “This is a case about the Constitution and the law.”