PCAOB Unconstitutional

[filsdepac]

Just read this article:

http://finance.yahoo.com/news/Sarban...&asset=&ccode=

Pretty interesting stuff for the accountants/business owners on the board. What is the "separation of power requirement" and how does it apply exactly?

[filsdepac]

Sadly, after reading this article, the entire PCAOB won't be struck down:

http://online.wsj.com/article/SB1000...NewsCollection

Just how it is structured. Too bad...

[Moliere]

Sadly, after reading this article, the entire PCAOB won't be struck down:

http://online.wsj.com/article/SB1000...NewsCollection

Just how it is structured. Too bad...

Thanks for the update. I've been following this but not to closely now that I'm out of auditing.

One question I have is that I kept hearing that SOX didn't have a severability clause, meaning that if part of it was struck down the whole thing would go away. What happened to that? It seems the SCOTUS is saying that the way board members are appointed should be seperated from the law and changed. But if there is no severability clause and SCOTUS takes out part of the law how is the law still in effect?

[Moliere]

I wanted to add another thing to this but didn't have time since I do work most of the time

SOX was an abysmal nightmare when it first came out. Most of this was related to section 404, which required auditors to opine not only on an company's internal controls over financial reporting, but it also required auditors to opine on management's assessment of their own internal controls. Basically the auditors had to not only make sure internal controls were working properly, but they also had to make sure management was testing the internal controls.

This second item (opining on management's assessment) was completely onerous and led to many, many difficulties in determining what to test and what not to test. Audiors are good at testing actual amounts, which they have historically done, but when it comes to touchy/feely stuff like internal control processes and control testing auditors struggle with that especially when they have to issue an opinion on the effectiveness of controls. There is too much gray. Opining on management's assessment forced auditors and management to agree on what controls were more important and on levels of deficiencies which can be cumbersome at large corporations that have over 1,000 key controls.

Long story short, the initial SOX testing that was established by the PCAOB in their audit standard #2 was way too cumbersome (but it did lead to some nice raises in the audit industry in 2004). The requirement to opine on management's assessment was removed sometime in 2007 or 2008 with the issuance of audit standard #5. With the revisions made by AS5 I actually think SOX is now at a place that it should have been all along. It provides for good amounts of testing on internal controls without requiring too many onerous procedures by the auditors or by management.

This cycle of regulation (tough regulation is passes and lauded by the supporting political party, the public sees the ridiculous nature of the regulation when it is put into practice, the regulation is paired down to the essential items and becomes less burdensome) seems to be the norm especially when regulation is in response to a crisis (SOX was in response to Enron as well as other frauds that came after such as Worldcom and Tyco). My hope is that this new financial reform, if it is overreaching, can be paired down to something useful.