We’re not quite as sure as others are that yesterday’s Supreme Court decision regarding SarbOx is so utterly meaningless regarding the future of the Public Company Accounting Oversight Board.
Sure, the court said the law is still fully in effect, blah, blah, blah.
But letting the Securities and Exchange Commission fire PCAOB board members for any reason instead of “for cause” could easily subject the board to significantly more political influence.
While Floyd Norris says the commission is unlikely to fire anyone on the PCAOB, the fact is the has commission has thrown its weight around in similar fashion in the case of the Financial Accounting Standards Board when companies have complained to Washington about FASB’s accounting rule making.
What’s to stop them from complaining to the SEC that the PCAOB is being too hard on its auditors, and the SEC from succumbing to that pressure?
Much depends, of course, on who’s leading the commission. Mary Schapiro might not easily bend to the political winds, but her predecessor, Christopher Cox, clearly did just that in connection with FASB.
After all, when during a conference on accounting I asked Conrad Hewitt, the SEC’s last chief accountant under Cox, about the SEC’s threat to hold up approval of FASB’s budget unless it let the commission vet nominations to the board in advance, Hewitt said the SEC was acting properly in its heightened role as the FASB’s overseer under SarbOx.
Yet a FASB member privately insisted to me afterward that the SEC had no authority to do what it did.
And at another conference a few months later, I asked Hewitt what the White House was telling the SEC to do about exemptions for small companies from SarbOx’s requirements for internal controls, the infamous provision known as Section 404. At that, Hewitt, as somnolent a figure as ever occupied the job, sat up in his chair as if he’d just had a bucket of cold water thrown in his face, and insisted that the SEC was an independent agency.
But given what happened to Cox’s predecessor, William Donaldson, I think Hewitt’s reaction to this question was disingenuous.
And both of his answers help explain why the big argument on the court yesterday over the theory of “the unitary executive” and the ability of the president to fire “independent” agency personnel isn’t quite as irrelevant to the PCAOB’s future as most everyone else seems to think.