The U.S. Supreme Court has agreed to hear a small accounting firm’s appeal that the Public Company Accounting Oversight Board is unconstitutional.

The case of Free Enterprise Fund and Beckstead and Watts vs. the PCAOB has wound through the courts since February 2006, claiming the manner in which the PCAOB is established and governed violates the U.S. Constitution. The U.S. Court of Appeals for the District of Columbia Circuit threw out the case in August and refused to grant a rehearing in November, but the Supreme Court agreed this week to take a look.

Free Enterprise Fund and the Las Vegas accounting firm, which focuses its practice on audit work for small and microcap public companies, say the board has broad powers to establish and enforce law without appropriate oversight. The two parties claim the PCAOB’s structure and operation, especially its freedom from Presidential oversight, violate the separation-of-powers principles and the Appointments Clause of the Constitution.

The PCAOB said in August it was gratified that the Court of Appeals upheld the District Court’s decision that the manner in which PCAOB members are appointed and overseen under Sarbanes-Oxley is constitutional. “We remain confident that the PCAOB's structure is constitutional and look forward to our opportunity to demonstrate that in the Supreme Court,” said PCAOB spokesman Colleen Brennan.

Brad Beckstead, managing partner at Beckstead and Watts, said in a statement that the costs to comply with Sarbanes-Oxley are a barrier to enter the market for small entrepreneurial and developing companies, including the auditing requirements established under Sarbanes-Oxley and the PCAOB. “We must continue to fight against the burdens of over-regulation on small business and hold the PCAOB accountable to the public,” he said.

Nick Morgan, a partner with the law firm DLA Piper, said the case could have far reaching implications. “If the Supreme Court decides the PCAOB is unconstitutional, it would cease to exist,” he said. “There was a world before the PCAOB, and people could argue over how well that world functioned. If the PCAOB goes away, it will just revert back.”

Morgan said it would take an act of Congress to protect the PCAOB and the rules it has established from extinction if the Supreme Court would seem inclined to find its current structure or operation unconstitutional. “Since it was created legislatively, it would have to be a legislative fix,” he said. “It would have to be some amendment to Sarbanes-Oxley (which created the PCAOB).”

The case could also have implications for the establishment of new regulatory bodies, Morgan said. As the current economic crisis has led to calls for new regulatory agencies or the restructure of existing agencies, the Supreme Court’s view of the PCAOB could become important to any new developments, he said.