USA: the constitutionality of the Public Company Accounting Oversight Board

The Public Company Accounting Oversight Board was created by the Sarbanes-Oxley Act (2002) to oversee the auditors of public companies. The PCAOB's duties include registering public accounting firms; establishing auditing, quality control, ethics, independence and other standards relating to public company audits; conducting inspections, investigations and disciplinary proceedings of registered accounting firms; and enforcing compliance with the Sarbanes-Oxley Act (2002).

The constitutionality of the PCAOB was challenged in a recent case (Free Enterprise Fund and Beckstead and Watts LLP v PCAOB et. al., No. 07-5127, 22 August 2008) before the Court of Appeals for the District of Columbia Circuit.  It was argued that Sarbanes-Oxley (2002) violated the Appointments Clause of the Constitution and separation of powers because it did not permit adequate Presidential control of the PCAOB. By majority the court rejected these arguments. The following summary of the majority view is taken from the judgment:

We hold, first, that the Act does not encroach upon the Appointment power because, in view of the Commission’s comprehensive control of the Board, Board members are subject to direction and supervision of the Commission and thus are inferior officers not required to be appointed by the President.  Second, we hold that the for-cause limitations on the Commission’s power to remove Board members and the President’s power to remove Commissioners do not strip the  President of sufficient power to influence the Board and thus do not contravene separation of powers, as that principle embraces independent agencies like the Commission and their exercise of broad authority over their subordinates".