Posted by Chris McClean on June 28, 2010
Despite some speculation that today's Supreme Court ruling might overturn large portions of the Sarbanes-Oxley Act (if not all of it), the final opinion will likely have no significant impact on financial controls, auditing, or reporting requirements.
The Court found that the method by which Public Company Accounting Oversight Board (PCAOB) members are appointed does not grant the Executive branch sufficient oversight because of the restrictions on when members can be removed from their position. According to Chief Justice Roberts' opinion, "The consequence is that the Board may continue as before, but its members may be removed at will by the (Securities and Exchange) Commission." And for those arguing that SOX doesn't have a severability clause that maintains the act's legality even when a portion of it is overruled, Roberts clarifies that "the unconstitutional tenure provisions are severable from the remainder of the statute."
There is, of course, the possibility that Congress will re-evaluate SOX in light of this opinion . . . not just the appointment and tenure provisions, but all provisions of the law. However, even if legislators find time in their already overtaxed schedule to review SOX, it seems that the current mood in Congress would not favor more relaxed corporate governance requirements. For example, we are nearing the final vote on the Dodd-Frank Wall Street Reform and Consumer Protection Act, which contains substantial new oversight requirements in its more than 2,000 pages.
By the way, I was disappointed to see Rep. Barney Frank graciously propose changing the name from "Frank-Dodd" to "Dodd-Frank." Now if we use the same nickname convention that brought us SOX, we'll forever have to talk about compliance with "DANK." Compliance with "FRODD" has a much better ring to it.