The Public Company Accounting Oversight Board has thrown the book at a small Nevada audit firm for a long list of audit violations, including a suspension for Brad Beckstead, former partner with Beckstead and Watts whose challenge to audit inspections and the existence of the PCAOB before the U.S. Supreme Court created uncertainty over the future of audit regulation.
Beckstead is barred from having any association with any firm registered with the PCAOB for one year, then faces limitations on what he can do in public company auditing for an additional year after the suspension. He’s censured and required to complete professional education in public company audits because of violations of PCAOB standards “in multiple respects,” the PCAOB said. The board says as an engagement partner with Nevada firm L.L. Bradford & Company, Beckstead failed to properly plan an audit, assess risks, evaluate the qualifications and competence of a specialist, perform sufficient audit procedures on the specialist’s assumptions, and appropriately test the company's reported revenue.
At the same firm, the PCAOB also brought actions against three partners and a former partner charging violations of auditor rotation requirements on six separate audits or audit reviews, problems in quality control in assuring compliance with auditing standards, and violation of auditor independence rules by providing bookkeeping and other services to an audit client. The charges include an additional action against the former Bradford partner in connection with a position at a subsequent audit firm. Civil penalties against the auditors other than Beckstead add up to $40,000.
Beckstead was managing partner at Beckstead and Watts, a small Nevada firm, when he challenged a 2005 audit inspection report that was critical to the firm. Enlisting the help of Free Enterprise Fund, he sued the board and its members, and sought a judgment that the very existence of the PCAOB is unconstitutional. The case made its way to the Supreme Court in December 2009.
The Supreme Court didn’t shut down the PCAOB, but Beckstead successfully repressed the critical 2005 inspection report, and his case drove changes to Sarbanes-Oxley provisions over how PCAOB members are appointed and removed. As the case made its way through the legal system, the Securities and Exchange Commission stalled appointing new board members as terms expired, instead carrying board members like Charles Niemeier and Bill Gradison beyond their terms on an interim basis. Board member Dan Goelzer served as interim chairman during the same period.
The PCAOB doesn’t say what led to the investigation and charges of Beckstead at his new firm. Bradford’s most recently published inspection report shows the PCAOB inspected the firm in June 2012 and found problems with all of the audits inspected. “Inspections certainly are a source of our enforcement cases but we typically don’t specify the source of individual cases,” says PCAOB spokesman Colleen Brennan. The report identifies failures in audit procedures around a business combination, a reverse merger, revenue recognition, inventory valuation, and valuation of capitalized development costs.
Beckstead’s online resume shows he ended his time at Beckstead and Watts in December 2010, roughly six months after the Supreme Court decision. He performed some consulting work involving Sarbanes-Oxley and internal controls and became managing partner for a new firm, Beckstead & Company, in December 2013. Most recently, he lists his present employment as president and CEO of Green Diesel, Inc., an entrepreneurial energy firm.