Thursday, July 1, 2010


Misleading headlines really irritate me, but I must admit they usually get me to read the article or at least enough of it to know that I have been had. For example the headline “Supreme Court Rules PCAOB Unconstitutional.” Wow now you really have my attention. So the PCAOB has been declared unconstitutional. What does this mean for oversight of the accounting profession? Will the PCAOB be disbanded?

As I began to read the articles I immediately became confused. Confusing me is never very difficult. The article went on to say that by a vote of 5 to 4 the court had ruled that the PCAOB violated the Constitution’s separation of powers principle because their board members are not appointed by the president, but rather by the Securities and Exchange Commission with consultation with the Federal Reserve chairman and the Secretary of the Treasury. I guess that what really started me scratching my head was a few paragraphs further into the article there was a quote from the chairman of the PCAOB saying that he was pleased with the decision. Now I am really confused. Why would the chairman of an organization that has just been declared unconstitutional be happy about that decision?

As always the devil is in the detail. What the court had actually ruled was that the Board’s existence does NOT violate the separation of powers, but the method by which board members can be removed does violate the constitution. Previously the SEC could only remove PCAOB board members for good cause. So with this ruling the SEC will now be able to remove board members “at will” and not just for good cause. All of the other operations and activities of the PCAOB will remain intact.

So the next time you have someone ask you if you heard what was in the paper you might want to take it with a grain of salt until you have a chance to check it out for yourself. What do you think?

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