The U.S. Supreme Court issued a long-awaited ruling in the constitutional challenge to the PCAOB that left the agency virtually unchanged. The court’s 5–4 decision, announced in June, will not affect day-to-day operations of the PCAOB, the agency said.


Chief Justice John Roberts wrote the majority opinion. In it, he said the court was isolating, or “severing,” from the rest of the Sarbanes-Oxley Act (SOX) the one constitutional flaw the court found regarding the power to remove PCAOB members. “The consequence is that the [PCAOB] may continue to function as before, but its members may be removed at will by the [SEC],” said the Court’s summary of the decision.


The ruling in Free Enterprise Fund v. Public Company Accounting Oversight Board (08-861) also emphasized that all other provisions of SOX will remain in effect. “The Sarbanes-Oxley Act remains ‘fully operative as a law’ with these tenure restrictions excised,” the court said.


“The decision effectively fixes the constitutionality of the PCAOB by making board members subject to ‘at will’ removal by the SEC and therefore the president,” said AICPA President and CEO Barry Melancon. “It sustains the continued function of both the PCAOB and Sarbanes-Oxley.”


“The consequence of the Court’s decision is that PCAOB board members will be removable by the SEC at will, rather than only for good cause. All other aspects of the SEC’s oversight, the structure of the PCAOB and its programs are otherwise unaffected by the Court’s decision,” the PCAOB said in a news release. “Accordingly, all PCAOB programs will continue to operate as usual, including registration, inspection, enforcement, and standard-setting activities.”


“It is important to understand that the PCAOB’s auditing standards, as approved by the [SEC], continue to apply,” said James L. Kroeker, the SEC’s chief accountant, in a press release. “Audit firms are required to be registered with the PCAOB, and they remain subject to inspections.”



  Ruling in a case widely followed because of its possible far-reaching implications for business-method patents, potentially including tax patents, the U.S. Supreme Court decided in June that a method of hedging against fluctuations in the price of energy or other commodities was an unpatentable abstract idea. The court, however, rejected the idea that a business method could never be patented.


Some business-method patents have been approved by the U.S. Patent and Trademark Office, including some concerning taxes. Some tax practitioners and groups, including the AICPA, have opposed patents for tax strategies or planning methods.


In the case Bilski v. Kappos (08-964), the high court upheld the substantive holding of the Federal Circuit Court of Appeals. However, the Supreme Court rejected the reasoning behind the lower court’s holding. The Federal Circuit had concluded that the hedging method was not eligible for patent under 35 USC § 101, the main statutory definition of patentable subject matter, because it failed the machine-or-transformation test. The Supreme Court’s majority opinion, written by Justice Anthony M. Kennedy, held that the application at issue was not patentable principally because it embodied an abstract idea, a mathematical procedure that, broadly applied, could allow the applicants rights over many types of hedging activities.


The majority opinion also found that business methods were not categorically unpatentable because 35 USC § 273 “explicitly contemplates the existence of at least some business method patents.” In a separate concurring opinion, however, Justice John Paul Stevens (now retired), joined by justices Ruth Bader Ginsburg, Stephen Breyer and Sonia Sotomayor, said business methods should not be patented.


More from the JofA:


 Find us on Facebook      Follow us on Twitter



Preparing the statement of cash flows

This instructive white paper outlines common pitfalls in the preparation of the statement of cash flows, resources to minimize these risks, and four critical skills your staff will need as you approach necessary changes to the process.


Keeping you informed and prepared amid the coronavirus crisis

We’re gathering the latest news stories along with relevant columns, tips, podcasts, and videos on this page, along with curated items from our archives to help with uncertainty and disruption.