The U.S. Court of Appeals for the District of Columbia upheld a lower court decision on the constitutionality of the PCAOB and Sarbanes-Oxley Act, which spawned the regulator.

The plaintiffs in Free Enterprise Fund v. PCAOB argued that SOX and the PCAOB violate the appointments clause, separation of powers and nondelegation principles of the Constitution because PCAOB board members hold significant regulatory power yet are appointed by the SEC, not by the president with the advice and consent of the Senate.

The appeals court held 2-1 that the manner in which PCAOB board members are appointed and overseen under Sarbanes-Oxley is constitutional. SEC commissioners, who are appointed by presidential nomination with Senate consent, "exercise comprehensive control over Board procedures and decisions and Board members. For instance, the Commission approves all Board rules," Justice Judith W. Rogers wrote for the majority in the appellate court ruling.

The AICPA's Auditing Standards Board issued an exposure draft of a proposed Statement on Auditing Standards (SAS), Interim Financial Information. The proposed statement would amend AU section 722, Interim Financial Information, to accommodate reviews of interim financial information of nonissuers, including companies offering securities pursuant to SEC Rule 144A or participating in private equity exchanges. For example, a nonissuer may, on a quarterly basis, prepare interim financial statements that conform to the requirements of Article 10 of SEC Regulation S-X.

The statement would apply when the interim financial information is intended to provide a periodic update to year-end reporting and the accountant has either audited the entity's latest annual financial statements or is auditing the current-year financial statements and the entity's latest annual financial statements were audited by another auditor.

The statement clarifies that if these conditions are not met, reviews of interim financial information of nonissuers should be performed in accordance with Statements on Standards for Accounting and Review Services. The proposed SAS also removes the guidance for reviews of the interim financial information of issuers because such guidance appropriately resides in the PCAOB's auditing standards.

The proposed statement would be effective for interim periods of fiscal years beginning after Dec. 15, 2008. Early application would be permitted. Comments are due Nov. 3. The document is available at


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