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PCAOB Counters Legal Attack on Sarbox

PCAOB Counters Legal Attack on Sarbox

by Rick Turoczy on May 22, 2006

On February 7, the nonprofit Free Enterprise Fund and small Nevada audit firm Beckstead and Watts sued the accounting board in U.S. District Court for the District of Columbia to halt its investigation of Beckstead. The plaintiffs took their lawsuit one giant step further: they asserted that the setup of the PCAOB violates the Constitution’s separation-of-powers principal as well as its appointments clause because members of the Securities and Exchange Commission–and no one from the executive, legislative, or judicial branches of government–appoint the members of the PCAOB.

Rather than tackling the constitutional issues, however, the PCAOB seems to be mounting a technical defense. The board, which was established under the Sarbanes-Oxley Act, first contended that the plaintiffs bypassed the act’s exclusive review mechanism by pursuing their suit in district court. Under Sarbanes-Oxley, argued the board, accounting firms may challenge disciplinary sanctions only before the Securities and Exchange Commission and then before appeals courts.

PCAOB Counters Legal Attack on Sarbox

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