- The Washington Times - Tuesday, December 19, 2006

Tomorrow is an important day for publicly traded American companies, particularly the smaller ones. Lawyers will try to convince Judge James Robertson of the U.S. District Court for the District of Columbia that a regulatory entity called the Public Company Accounting Oversight Board, a creature of the 2002 Sarbanes-Oxley accounting law, is unconstitutional. Executives and critics have nicknamed it “Peekaboo” in mockery of its awful acronym “PCAOB.” As in: Peekaboo! Here’s an even costlier audit.

In the last several months, the case against the board has been building. No wonder. “Peekaboo” immediately joined the ranks of the least accountable regulators upon its founding and has only increased its clout since. Consider the following. The board is theoretically a private organization, but the 2002 accounting law makes it arguably the single greatest rulemaking power in American auditing, all outside the Constitution’s appointments clause. The 2002 law authorized the board to set all manner of auditing standards, investigate auditors and levy fines of up to $2 million. It also grants it the power to sue — and to generally make radioactive any company it believes to be outside the rules.

The crux of the problem is that the five-member board is not nominated by the president and then called before the Senate for confirmation. To the contrary, officers are appointed by the Securities and Exchange Commission. This means that they are not directly accountable to the president and not even to the Congress which created the powerful entity in the first place. They are accountable to other bureaucrats.

Congress “drafted the statute to insulate the Board’s wide-ranging exercise of executive and administrative powers from presidential oversight or control,” wrote “Peekaboo” critic Kenneth W. Starr in the Wall Street Journal last weekend. Strictly speaking, this is outside the spirit of the appointments clause and in our view also its letter. The board even sets its own salaries, as the Competitive Enterprise Institute’s John Berlau and Hans Bader, two of Washington’s best “SarbOx” watchdogs, have publicized. Chairman Mark Olson makes a princely $556,000, which would be the highest in the U.S. government if it were officially a government agency (it is not), well above President Bush’s $400,000 salary.

There is good and bad in the 2002 Sarbanes-Oxley law, whose net effect must be carefully measured to ensure that openness increases — the whole point of corporate-governance reform — but that companies are not overburdened in the process and that government is not warped beyond its legitimate authorities. This board has a disproportionate share of the bad and the warping. If Judge Robertson disagrees, Congress will need to fix its hasty work from 2002 by reining in “Peekaboo” and making its leadership accountable with presidential nominations and confirmation by the Senate, just like any other important arm of government.

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