Auditing

PCAOB Disapproves First Auditor

The firm failed to respond ''adequately and appropriately'' after its work had been deemed ''deficient in significant respects.''
Stephen TaubMay 10, 2004

As of May 4, the Public Company Accounting Oversight Board had approved the registration applications of 840 accounting firms that wished to audit public companies. Last week, the accounting industry’s watchdog issued its first rejection.

The PCAOB announced that it had disapproved the application of James C. Marshall P.C. of Scottsdale, Arizona. According to the board, the Marshall firm failed to respond “adequately and appropriately” after the professional body responsible for reviewing its work — the American Institute of Certified Public Accountants — found that work “deficient in significant respects.”

Despite an agreement with the AICPA to have a concurring reviewer backstop its work, the Marshall firm issued seven audit reports between September 1, 2002, and September 15, 2003, without such a review, stated the PCAOB. The firm issued reports on the statements of American Soil Technologies Inc. (twice), Blue Moon Group Inc., CSI Technologies Inc., Orderpro Logistics Inc., Quiet Tiger Inc., and Silverado Financial Inc.

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In addition, the PCAOB asserted that the Marshall firm was unwilling or unable to comply with reasonable corrective steps requested by the AICPA, which ultimately terminated its membership in January 2004. The oversight board also maintained that the firm’s application violated a PCAOB rule by failing to disclose that AICPA disciplinary proceedings were under way. The Marshall firm “has demonstrated a lack of candor,” the PCAOB stated in its nine-page “Public Notice of Disapproval.”

PCAOB member Kayla Gillan told the Washington Post that the board bases its decisions on “whether registering [accounting firms] and allowing them access to the public markets is in the best interest of investors.” The board looks for negative peer reviews and firms that have been sued over their work, among other factors, Gillan told the paper.

James C. Marshall, president of the firm, did not return calls to the Post before the newspaper’s press time.

In the past three months, added the paper, at least three of the Marshall firm’s former clients — including American Soil and Silverado, as well as Dstage.com Inc. — stated in SEC filings that they had hired new auditors.

In addition to its 840 approved applications, the PCAOB also has 143 pending applications, virtually all of them foreign-based. Many of these are overseas operations of the Big Four accounting firms.

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