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      Supreme Court Rules on Sarbanes-Oxley

      Jul 27, 2010
      In a June 28, 2010, ruling on Free Enterprise Fund et al v. Public Company Accounting Oversight Board et al., the U.S. Supreme Court made narrow changes to the Public Company Accounting Oversight Board (PCAOB),but left the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley) under which it was created primarily intact.

      In a June 28, 2010, ruling on Free Enterprise Fund et al v. Public Company Accounting Oversight Board et al., the U.S. Supreme Court made narrow changes to the Public Company Accounting Oversight Board (PCAOB),but left the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley) under which it was created primarily intact.

      Enacted on the heels of a number of scandals within the financial services industry, Sarbanes-Oxley took a number of actions, including establishing the PCAOB to monitor the auditors of public companies. Free Enterprise Fund et al. v. Public Company Accounting Oversight Board et al argued that the law was unconstitutional because it limited presidential power to remove PCAOB board members. The court agreed in a 5-4 ruling, but said the U.S. Securities and Exchange Commission should have the power to fire the PCAOB board members.

      However, the court also held that the unconstitutional provisions can be separated from the rest of the law. By this part of the ruling, the court held the remainder of Sarbanes-Oxley largely intact. There had been speculation in the business community that a broad ruling by the Supreme Court could result in more drastic changes to the law itself. But, the court specifically severed the unconstitutional provisions from the remainder of the law, writing in the opinion, “With the tenure restrictions excised, the Act remains ‘fully operative as a law.’”

      Reuter's News Service reported that the SEC, the PCAOB, investors, and the auditing community applauded the Supreme Court's decision. "The PCAOB has played a vital role in improving the quality of public company financial reports," said the Council of Institutional Investors, which represents investors with more than $3 trillion in assets. "Shareowners depend on fair, accurate financial statements in making investment decisions."

      An effective records and information management program plays a strong role in a public company’s ability to meet Sarbanes-Oxley compliance requirements; specifically, it will help it:

      • Identify the records necessary to support the CEO’s certification of accurate financial reporting
      • Ensure appropriate segregation of activities and information, particularly in the use of external auditors
      • Implement reliable systems for controlling and monitoring the destruction of business and financial documents
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