Despite all the criticism and hoopla, the Sarbanes-Oxley Act is here to stay. At least that’s the message sent by the results of two recent legal challenges brought against the Act.
The first, a lawsuit filed in February 2006 by a pro-business lobbying group, disputed the constitutionality of the independent board established by the Act to oversee the accounting industry. In its complaint, the Free Enterprise Fund alleged that the structure of the Public Company Accounting Oversight Board (PCAOB) violates the Constitution’s separation of powers doctrine.
If the plaintiffs to the case, which also included Beckstead & Watts LLP, a small Nevada accounting firm and subject of an ongoing PCAOB disciplinary investigation – had succeeded in their efforts to prove the PCAOB unconstitutional, the entire act risked being invalidated. However, U.S. District Court Judge James Robertson ultimately dismissed the case, stating in his opinion that the plaintiffs’ challenge to the PCAOB presented “nothing but an hypothetical scenario of an overzealous or rogue PCAOB investigator.”
While the PCAOB was clearly pleased with the judge’s decision, supporters of SOX may want to hold off celebratory plans for a while longer. The plaintiffs have vowed to push forward with the legal action, stating intentions to take the case to the Court of Appeals and the Supreme Court. (Free Enterprise Fund, et al. v. PCAOB, Civil Action No. 06-0217, March 21, 2007)
On the legislative front, a proposed amendment to make Section 404 compliance optional for small companies was shot down in the Senate by a vote of 62-35. South Carolina Republican Jim DeMint attempted to attach the SOX amendment, which would make the Act’s most widely contested provision voluntary for smaller public companies, to a Senate bill focused on increased investment in research and improved science, math, and engineering education.