Magazine article Information Management

Group Challenges SOX Oversight Board

Magazine article Information Management

Group Challenges SOX Oversight Board

Article excerpt

A group that advocates free enterprise and limited government and includes former federal independent counsel Kenneth Starr is challenging the constitutionality of the Sarbanes-Oxley Act of 2002 (SOX) and its provisions that govern the accounting of public companies.

The Free Enterprise Fund of Washington, D.C., filed a constitutional legal challenge to the Public Company Accounting Oversight Board (PCAOB) created by Congress as part of the corporate accountability act.

The lawsuit claims that although SOX purports to make the board a private entity, it delegates to the board vast governmental powers.

The complaint, filed in U.S. District Court for the District of Columbia in February, alleges that the PCAOB violates the Appointments Clause of the Consti-tution because it is composed of superior "officers" who need to be appointed by the president (or, alternatively, by heads of executive branch departments) rather than the Securities and Exchange Commission.

The suit's broader claim is that the PCAOB violates separation of powers principles because its members perform an executive function but are not appointed or removable by the president or any entity within the executive branch. According to the suit, by giving the board unbridled authority to set standards regulating accounting firms and to finance its own operations by charging a fee to public companies, Congress violated the constitutional prohibition on delegating its legislative powers to an entity outside the legislative branch.

The PCAOB is empowered to enact and enforce standards governing how public-company audits must be carried out and to impose sanctions on accounting firms of up to $2 million for inadvertent violations of the board's standards and up to $15 million for intentional or reckless ones. …

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