Guest Post: SCOTUS to PCAOB: Do Not Go to Jail; Do Pass Go and Go, Go, Go
Editor's note: Since JDA is still enjoying the sights and sounds of New York this week, our favorite anti-IFRS-in-the-US academic, The Summa's Professor David Albrecht, was kind enough to provide some words on the SCOTUS PCAOB decision yesterday. For more from Prof Albrecht, check out The Summa or stalk him on Twitter.
Some of you love all things SOX. Oops, that’s Sarbanes-Oxley instead of White or Red. Some of you hate all things SOX (especially if you are a Yankee fan and are thinking about Boston).. Those that hate Sarbanes-Oxley are trying either to maim it, or kill it.
Maiming is a fait accompli, given that a provision was added to the Dodd-Frank Wall Street Reform and Consumer Protection Act exempting companies with market caps of less than $75 million from 404-b requirements (auditors must opine on internal controls).
Homicide has always been the back-up. The hired guns are Beckstead and Watts, LLP (which has a history of serving small publicly-traded and development-stage companies), and a supporting group, the Free Enterprise Fund. It all started when the PCAOB inspected Beckstead and Watts, issued a negative review of its auditing procedures, and started a formal investigation that potentially could result in fines and/or no longer being permitted to serve SEC registrants. Beckstead and Watts (along with ally Free Enterprise Fund), sued the PCAOB, asking that it be declared unconstitutional and its actions nullified. If successful, Beckstead and Watts would prove conclusively that payback is truly a bitch.
Smaller corporations have been rooting for the lawsuit, while pushing for Congressional passage of the exemption. Audit firms have been ambivalent. Large firms were able to get rich from internal control consulting. Small firms are bleeding from compliance costs. There are a lot of smaller corps and small audit firms rooting for maiming and killing.
Today, the Supreme Court of the U.S. (SCOTUS) issued its decision. A small part of SOX is declared unconstitutional. But the beauty of the legal system is that it really doesn’t matter, the offending part of SOX is just excess verbage. Remove it, and the PCAOB is allowed to continue in existence doing whatever it has been doing for the past seven years.
Beckstead and Watts, LLP, and the Free Enterprise won, but there is no prize for them. SCOTUS says that the constitutionality issue has no bearing on PCAOB operations. The case is remanded back to the U.S. district court, but most likely there will be no relief for Beckstead and Watts.
PCAOB, you are now cleared to roam about the country, inspecting audit firms to your heart’s content.