The Supreme Court's decision in the Free Enterprise Fund vs. PCOAB is coming this month. And the drama is building--but perhaps not as much as you would think. The response may have something to do with the fact that the Public Company Accounting Oversight Board (PCOAB news), even if it is deemed unconstitutional, will likely survive in some form. 

Re:The Auditors does a nice job of wrapping up the issues. Some predict the court will uphold the constitutionality of the board; the delay in opinion may reflect the process of hammering out a middle-course decision. But a Compliance Week commentator suggests the court will find the opposite. "It is entirely possible that the conservative majority on the court will side with the conservative activists who brought suit against the PCAOB, and invalidate its existence," he writes. His prediction: "the Supreme Court will rule the PCAOB an unconstitutional body, and ultimately the solution will be to peel away the appointed board and re-organize the rest of it as a Division of Public Accounting operating within the SEC." 

No matter how this is resolved, the board will survive. But an "unconstitutional" ruling might present an opportunity to make some change that would reflect a lot of partisan persuasions. Some may want to gut the board--or at least weaken it. In addition, if Congress were forced to amend one portion of the controversial law that created the PCAOC--that would be the Sarbanes-Oxley act of 2002--it might open up the law to lot of changes. That just might give "lobbyists a new shot at gutting other provisions aimed at strengthening companies' audits and governance," notes a commentary in Bloomberg. 

But assuming the anti-Sarbox zealots can be held at bay, this might also mark an opportunity to fix some flaws, hence six recommendations from Re: The Auditors, with which we agree wholeheartedly:   

• Eliminate the revolving door;
• Eliminate obstacles to inspections of international firms;
• Make Part 2 of the inspections reports public in all instances;
• Enforce stronger sanctions on a more timely basis and more clearly delineate responsibility for sanctions between the PCAOB and SEC;
• Give the PCAOB the power, under law, to review or stop mergers and acquisitions by the firms that may not be in the public's interest or may cause independence violations; and
  
• Put bigger teeth into the inspections process   - Jim