Supreme Court could decide PCAOB's fate.

• Author: Heffes, Ellen M.
• Position: LEGAL ISSUES - Public Company Accounting Oversight Board v Beckstead and Watts LLP - Case overview

The United States Supreme Court recently agreed to hear an appeal from Beckstead and Watts LLP, a small Las Vegas accounting firm that, if successful, would eliminate a regulatory body that has grown in importance since its creation seven years ago.

In reaction to allegations of widespread financial fraud at companies like Enron Corp. and WorldCom Inc. in the late 1990s and early 2000s, the federal government passed The Sarbanes-Oxley Act of 2002.

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Among other things, Sarbanes-Oxley created the Public Company Accounting Oversight Board, which was intended to be a quasi-private agency to oversee the auditing of companies publicly traded on U.S. stock exchanges.

PCAOB has the power to inspect, investigate and punish accounting firms and accountants for violating its regulations, professional standards or federal laws. PCAOB also has the authority to adopt rules interpreting Sarbanes-Oxley Section 404, which requires company officers to assess their firms' internal controls and company auditors to "attest" to the assessment.

The board is funded by an accounting support fee levied on public companies rather than by funds appropriated to it by Congress, as is the case with many other regulatory agencies. PCAOB's self-funding ability has resulted in its steady growth. In 2004, it had a budget of $103 million and a staff of 126 employees. By the end of 2005, its budget was $136 million, with more than 400 employees; for 2009, a $157.6 million budget was approved by the U.S. Securities and Exchange Commission.

Beckstead and Watts filed a lawsuit in 2006, after PCAOB conducted an inspection of the firm. The accounting firm argued that PCAOB is unconstitutional because it violates the Appointments...