Redemtech Customers Should Be Aware of SarbOx Case Before U.S. Supreme Court

The Sarbanes-Oxley Act of 2002 (SarbOx) is very important to Redemtech and its customers because the law requires IT departments to create and maintain a complete and cost-effective corporate records archive that satisfies all regulatory compliance requirements. SarbOx impacts the management of electronic records and is designed to assure that company directors and officers remain aware of the financial condition of the companies they manage and for which they are financially accountable.

This week, the U.S. Supreme Court heard arguments for and against the constitutionality of the Public Company Accounting Oversight Board (PCAOB) established by SarbOx to monitor public company financial activity. The Sarbanes-Oxley Act was created and enacted into law in an effort to reduce fraudulent financial activities and provide an oversight mechanism for public companies. The PCAOB consists of five members appointed by the U.S. Securities and Exchange Commission (SEC). The outcome of the case could alter how corporate America is audited and strike at the heart of SarbOx, industry observers contend.

It is important for Redemtech customers to understand the significance of this development. Hearing arguments on Monday, several justices suggested that the PCAOB lacks the presidential oversight required under the U.S. Constitution for executive branch agencies. A ruling striking down the board would leave it to the U.S. Congress to re-establish an oversight panel, setting up a legislative fight that might include other aspects of SarbOx.

A small Nevada accounting firm and an anti-tax group brought the challenge to SarbOx, arguing that the PCAOB violates the U.S. Constitution's separation of powers mandate because the president cannot appoint or remove its members. As a Washington Post article points out, it is not the chief executive who is complaining. Both President Obama and his predecessor George W. Bush approved of the creation of the PCAOB, even without the ability to appoint or dismiss its members. It remains unclear if a closer examination of SarbOx would actually lead to tighter, or looser, controls on public companies.

At the crux of the argument is the small certified public accounting firm in Henderson, Nev., which reportedly acted because it felt the PCAOB singled it out for allegedly inadequate audit practices. Brad Beckstead, owner of the firm, and his attorneys, support additional regulation for large public corporations, which often have investments from pension funds, according to a Las Vegas Review-Journal article, but argue that the government should not require the same level of auditing procedures for small startup companies, in which individuals typically invest small sums with knowledge of the risks.

Consequently, the case pits advocates of limited government who say excessive regulation is stifling businesses against those who say even small public companies need tough accounting standards so investors can make informed decisions, the Review-Journal explains.

A Washington Post editorial claims Congress went too far in its effort to insulate the PCAOB from industry and political pressure, but adds that if the justices strike down the PCAOB standard, the common law would then entitle the SEC to remove members "at will." “Taking such a step should cure the possible constitutional infirmity and would otherwise leave intact an important, congressionally created policy tool that has served a crucial role in increasing confidence in the legitimacy of public company audits,” the Washington Post concludes.

Compliance with all federal and state regulations pertaining to financial and asset management reports is central to Redemtech’s work as a Technology Change Management company that helps other businesses successfully manage their IT assets. This will not change regardless of what the Supreme Court decides on the SarbOx case.