For reasons known only to Mercury, the god of communications, this post from Thursday was not fed to most subscribers. So this re-posting, with apologies to anyone finding or receiving it a second time.

When I went to make breakfast on Tuesday, I found a tempest swirling
in my teapot: the report that the United States Supreme Court is to
resolve a constitutional challenge to the law establishing the Public
Company Accounting Oversight Board – created by the post-Enron
legislative spasm of the Sarbanes/Oxley law of 2002.

This is an
abstruse squabble over the scope of the presidential authority to
appoint government employees classified, without any apparent irony, as
“inferior officials.”

Paying almost no attention, the
mainstream American media have their priorities right, putting their
focus instead on the Court’s agreement the same day to review the
criminal conviction of corporate kleptocrat Conrad Black.

The
news-consuming public, in other words, understandably has less interest
in whether a bunch of rascals are to be thrown out, than if one should
be thrown in.

I’m not generally one for wagering, for reasons I’ve spelled out – here
– life already being sufficiently full of risks and hazards. But the
easiest signal of the high court’s acceptance of the PCAOB’s legitimacy
would have been to leave standing the lower courts’ orders. So it is a
decent prediction that some time in next year’s term, the axe will fall.

And then?

And
then will come the kind of grandstanding that Washington does so well.
Led in the Senate by Chris Dodd (D-Conn.), chairman of the Banking
Committee, and in the House by Barney Frank (D-Mass.), chairman of the
Committee on Financial Services, the elected mob – of whom humorist
Will Rogers sagely observed that “no man’s purse is safe while the
legislature is in session” – will serve up a new kind of bail-out.

Which
is, they will resuscitate the old agency in a new guise, only this time
arrayed in bells and whistles reflecting their politicized reaction to
the economic turmoil lately inflicted on us all.

And where will the vitally-interested accounting profession figure?

Historically,
the high point of their influence lay in securing the franchise of
privately supplied assurance, under the audit requirements of the
securities laws of 1933 and 1934. In the following three-quarter
century, sadly, the degree of attention and respect given to the
auditors in the shaping of their regulatory fate has been like that in
the research into shark feeding, as given to the food.

Because
the Democrats control both houses of Congress and have their rock-star
in the White House, the “appointment authority” issue will be repaired
with the legislative equivalent of a piece of duct tape or a whack with
a wrench. Making it a total non-event, the fix-up will include a
wholesale re-adoption and ratification of everything wrought by the
then-defunct PCAOB, so the transition will be seamless and invisible –
turning the entire affair into little more than an ego exercise for
those angling to get their names into the law case reports.

It’s
necessary to remember that the Supreme Court’s power runs only to the
narrow questions offered. It will not do a qualitative assessment of
all the mischief since Sarbox was enacted – not answering, for example,
the question that could be reasonably asked by, say, the battered
investors in Bear or Lehman or Merrill or Citi or AIG: “Over the last
seven years, has the PCAOB made the world of financial reporting and
assurance a better place?”

Which means there is nothing to be
served by trying to pick a winning side in this punch-up: there isn’t
one, in any way that matters.

If adult perspective prevails, the
accounting profession will resist the lure of friend-of-court advocacy,
saving itself both large legal fees and whatever amity it might salvage
for the lawmakers’ debate to come.

For there is now a window, of
perhaps six to nine months, in which a blueprint might be developed for
the successor agency to be enabled when the Supremes pull the PCAOB’s
plug.

Avoiding the post-Enron stampede that flattened all before it in the rush to Sarbox – footnote below
— the accountants along with whatever friends they can muster have the
chance to organize in support of a coherent and achievable structure – here.

Namely:
federal-level chartering of auditors of US public companies could be
combined holistically with standard-setting, oversight, inspection and
discipline — along with investor protection including insurance that
would be industry-funded but government-backed, to relieve the firms’
current “survivability” issue – namely, the deadly overhang of
life-threatening litigation exposure.

Ambitious – yes, surely.
But Dodd and Frank will have their law-drafting pencils sharpened
anyway. The opportunity to write on a blank page is too good for the
profession to waste.

Note: As I wrote back in July
2002 about the Senate’s passage of Sarbox, “any legislation receiving
the bipartisan margin of 97-0 is bound to be fundamentally defective.”
You’ll have to trust me, though; as the International Herald Tribune for whom I was then writing in Paris moves closer to full absorption by its parent, the New York Times, its archive has somehow disappeared from internet accessibility – here.

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