Is the PCAOB a 'Heavily Controlled Component' of the SEC?: An Essential Question in the Constitutional Controversy

43 Pages Posted: 23 Nov 2009 Last revised: 3 Jul 2013

See all articles by Donna M. Nagy

Donna M. Nagy

Indiana University Maurer School of Law

Date Written: 2010


The U.S. Supreme Court recently heard oral arguments in Free Enterprise Fund v. Public Company Accounting Oversight Board, described by D.C. Circuit Judge Brett Kavanaugh as “the most important separation-of-powers case regarding the President’s appointment and removal powers to reach the courts in the last 20 years.” Established by Congress as the cornerstone of the Sarbanes-Oxley Act of 2002, the PCAOB was structured as a strong, independent board in the private sector, to oversee the conduct of auditors of public companies.

This Article challenges the D.C. Circuit’s depiction of the PCAOB as “a heavily controlled component” of the SEC, and argues that this flawed premise was essential to the court’s 2-1 decision upholding the PCAOB’s constitutionality. With a focus on statutory analysis and legislative history, the Article seeks to show that Congress designed the PCAOB to operate with substantive independence from the SEC. It then argues that PCAOB members acting with significant discretion and autonomy outside the SEC’s control are “principal officers” who, pursuant to the Appointments Clause, must be appointed by the President with the advice and consent of the Senate. And as “principal officers” performing significant executive functions, PCAOB members must be removable for cause by the President.

Keywords: PCAOB, Sarbanes-Oxley, Securities and Exchange Commission, SEC, Free Enterprise Fund, Accounting, Oversight, Appointments Clause, Separation of Powers, Supreme Court

Suggested Citation

Nagy, Donna M., Is the PCAOB a 'Heavily Controlled Component' of the SEC?: An Essential Question in the Constitutional Controversy (2010). University of Pittsburgh Law Review, Vol. 71, p. 361, 2010; Indiana Legal Studies Research Paper No. 142. Available at SSRN: or

Donna M. Nagy (Contact Author)

Indiana University Maurer School of Law ( email )

211 S. Indiana Avenue
Bloomington, IN 47405
United States

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