Joining an anti-tax group in questioning the constitutionality of the Public Company Accounting Oversight Board is a one-partner Law Vegas auditing firm, Beckstead and Watts LLP.
The legal team for the Free Enterprise Fund, which filed the suit in Washington federal court on Tuesday, includes Kenneth Starr, the special prosecutor in the Monica Lewinsky scandal, and former U.S. Assistant Attorney General for legal policy Viet Dinh. The lead attorney is Michael Carvin, a partner at Washington-based Jones Day who specializes in constitutional litigation. Two attorneys with the Competitiveness Enterprise Institute, a Washington, D.C.-based libertarian think tank, which published a paper questioning the PCAOB's appointment process last fall, will also represent the plaintiffs.
The filing says that the PCAOB's structure violates the appointments clause of the Constitution. The five-member board is selected by the unanimous approval of the Securities and Exchange Commission, not by either the president -- which would require Senate approval -- or by the courts or a department head of an agency.
According to the PCAOB report issued in September 2005, Beckstead handles audits for what the firm calls micro-cap and development companies -- businesses with little to no operations, assets or market capitalization. Beckstead had been handling more than 60 clients when seven PCAOB inspectors came to review the firm's work for two weeks in May 2004.
The inspectors found deficiencies in half of the 16 audits they reviewed, most relating to a lack of documentation.
In a June 2005 response to the PCAOB's preliminary report, the firm said that investors usually understand the high risk they are taking with any of the companies in the niche market, and also said that the majority of the audit clients that had going-concerns listed on their audit reports now were facing significant non-operating losses.The firm wrote that it is a struggle "to perform audits in conformity with the requirements of SOX and the board working within the real cost constraints of our clients." While Beckstead stated that it respectfully disagreed with the findings of the board, the firm said that it has decided to reduce its client base to "just over 10." Beckstead lists a dozen clients on its Web site, www.becksteadwatts.com , which also has a link to the public version of the PCAOB report.
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