The Supreme Court announced Monday it plans to hear a case brought by the Competitive Enterprise Institute (CEI) and the Free Enterprise Fund challenging the constitutionality of the Public Company Accounting Oversight Board (PCAOB), CEI said in a press release.
According to CEI, the Appointments Clause of the Constitution specifies that “officers of the United States” be appointed by the president and confirmed by the Senate. But the officers serving on the PCAOB, with tremendous power to impose criminal and civil penalties on people and companies accused of violating accounting regulations, were not appointed that way.
“The Founding Fathers wanted powerful government officials to be vetted by the President and the Senate, to help ensure agencies remain accountable to elected officials and ultimately the American people,” said Sam Kazman, CEI’s general counsel. “The PCAOB imposes massive regulatory burdens on public companies, under threat of criminal and civil penalties, yet the regulators are completely unaccountable to the people, the President or the Senate.”
The Sarbanes-Oxley Act of 2002 created the Public Company Accounting Oversight Board, giving it authority to set accounting standards, impose its own set of taxes, and open investigations of accounting firms big and small. Yet unlike counterparts wielding similar authority, such as the IRS commissioner and Federal Reserve governors, PCAOB members are never vetted by the president or by the Senate, as neither of these bodies have a say in who will be appointed.
CEI reports that the PCAOB’s interpretation of Sarbanes-Oxley’s section 404 has cost public companies more than $35 billion a year, has proved especially burdensome to smaller public companies, and has cost the economy as a whole over a trillion dollars, according to a Brookings-AEI study. Bipartisan critics have observed that the PCAOB standards have burdened firms with minutiae while overlooking many of the practices that led to the subprime shenanigans.