Monday, June 28, 2010

Supreme Court Strikes Down Secret Accounting Board

Sometimes it helps to have a corporate lawyer on the Supreme Court. The ruling today strikes down a sort of secret society created by the Sarbanes-Oxley law to govern corporate accounting. The Public Company Accounting Oversight Board was intended to be slightly beyond the control of the government, but it wields the power of the government. It has the authority to conduct surprise inspections of essentially any C.P.A. and assess fines. Congress envisioned it as almost a private organization of the accounting business, with the idea that the industry could police itself. That is almost never a successful formula. Usually what happens is that the more powerful providers or organizations in an industry use such a governing body to squeeze out smaller companies and potential new competitors. This is a particularly egregious situation when the whole purpose of a board is to protect the public from the unscrupulous side of the accounting business. In case anyone has forgotten, the Sarbanes-Oxley law was passed in the first place largely in response to misconduct at what was then one of the largest accounting firms.

The Supreme Court has corrected this, partially anyway, by placing the Public Company Accounting Oversight Board more firmly under government control. My hope is that, as a result of this change, the board will pay more attention to protecting the public, and will not be so easily used as a tool of the accounting establishment to protect itself from competition.