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Thanks to Brad Beckstead, more entrepreneurs will have their day in court
Posted by John Berlau
As Open Market readers know, the Competitive Enterprise Institute recently helped achieve a very significant victory wrapped within a
defeat at the DC Circuit Court of Appeals. Although in Free Enterprise Fund v. Public Company Accounting Oversight Board
(PCAOB), a three-judge panel ruled ruled 2-1 against Brad Beckstead — whose two-person accounting firm had been brought to a
stand-still by the Sarbanes-Oxley-created accounting regulator PCAOB — the dissent of Judge Brett Kavanaugh could not have
been more powerful...
[continue reading by clicking on the following link:
Thanks to Brad Beckstead...]
Posted by John Berlau
As Open Market readers know, the Competitive Enterprise Institute recently helped achieve a very significant victory wrapped within a
defeat at the DC Circuit Court of Appeals. Although in Free Enterprise Fund v. Public Company Accounting Oversight Board
(PCAOB), a three-judge panel ruled ruled 2-1 against Brad Beckstead — whose two-person accounting firm had been brought to a
stand-still by the Sarbanes-Oxley-created accounting regulator PCAOB — the dissent of Judge Brett Kavanaugh could not have
been more powerful...
[continue reading by clicking on the following link:
Thanks to Brad Beckstead...]
SMALL AUDIT FIRM PREVAILS OVER BIG GOVERNMENT
Beckstead and Watts, LLP announces settlement with PCAOB
LAS VEGAS, Feb. 22 – Brad Beckstead, Managing Partner of Beckstead and Watt, LLP, a small Henderson, Nevada CPA firm
specializing in audits of small public companies, announced today that his firm has settled a lawsuit against the Public
Company Accounting Oversight Board (PCAOB) wherein the PCAOB has agreed to withdraw its formal inspection report dated
September 28, 2005, and release Beckstead and Watts from an accounting investigation it launched in September 2005 without
any formal findings. Beckstead and Watts had been seeking a court order nullifying the inspection report after the firm won its
case in June 2010 against the PCAOB before the Supreme Court. The Supreme Court held that Congress had violated the
Constitution’s separation of powers by improperly insulating the Board from Presidential supervision and control.
Beckstead and Watts was one of the first small firms to be inspected by the PCAOB in 2004 after the Board had conducted
intensive inspections of the Big Four accounting firms. Says Beckstead, “The inspection was akin to the New York Giants playing
the local high school in a game of football. The inspectors were all from Big Four CPA firms (mostly from the defunct firm,
Arthur Anderson) with more than 7 years of experience each. Seven of them sat in my 1,000 square foot office for 14 days
looking at 16 audit files. The time I spent with my staff reacting and complying with the inspection requests put significant
burdens on our ability to conduct a profitable business.” The Board issued a fascially damning inspection report charging the
firm with 8 audit deficiencies. Beckstead fired back in his formal response to the inspection report by saying, “…It is…a constant
struggle for us to perform audits in conformity with the requirements of SOX and the Board working within the real cost constraints
of our clients. If the Board were to simply ignore these cost and efficacy issues, this segment of the market likely will not be able
to remain in existence”. The Board did not take a liking to the response and opened a formal investigation of the firm on the
same day it released the firm’s inspection report on its public website.
The formal investigation subjected the firm to additional burdens by selecting an additional five audit files, many from the client’
s date of inception forward. Says Beckstead, “The investigation was the straw that broke the camel’s back. I was tired and beat
down by the persistent harassment by the Board. It was clear to me that they wanted to make me the poster child for small audit
firms, and that they ultimately wanted me out of business.” However, Beckstead continued to fight back by providing all of their
requested items, which included electronic and paper correspondence and files from him and all of his staff. He even showed
up to a three-day deposition without being represented by an attorney after spending $20,000 in legal fees to a firm who
struggled to develop a defense strategy in response to the investigation. Beckstead states, “The Sarbanes-Oxley Act was
uncharted legal territory at that time. I was paying the law firm to educate themselves on how to deal with the PCAOB. It was
wasted money and would have ruined me financially if I had continued with the law firm.” Three days after the depositions,
Beckstead filed a joint lawsuit with the Free Enterprise Fund charging the PCAOB with a violation of separation of powers and
the Appointments Clause of the Constitution. Beckstead was contacted by an attorney with the Competitive Enterprise Institute,
a DC-based non-profit organization who fights big government, who stated that he was impressed by Beckstead’s response to the
inspection, and asked if Beckstead and Watts would be interested in joining the lawsuit. Beckstead explains, “At that point I was
so beat down by their constant harassment, that I had nothing to lose. I said, ‘Sign me up.’”
As they say, “The rest is history.” Beckstead lost the legal battle in two lower courts, but the DC-based legal firm of Jones Day
headed by Mike Carvin (who successfully represented George Bush before the Supreme Court in the 2000 election debacle)
persisted and appealed to the Supreme Court. In June 2010, the Supreme Court ruled in favor of Beckstead and Watts and
made a change to the language of the Sarbanes-Oxley Act allowing members of the Board to be removed “at will” rather than
“for cause”. Says Beckstead, “I was overjoyed by the results of the lawsuit. Our best case scenario would have been for the
Supreme Court to strike down certain provisions of the SOX Act and thereby toss it back to Congress so small business lobbyists
could push them for exemptive relief, but I think this case brought to light the burden that over-regulation and over-zealous
inspectors can place on the shoulders of small business. As a result of publicity for this case, Congress exempted small business
issuers from SOX 404 internal control audit requirements, so we still got mostly what we wanted. I still would like to see Congress
exempt small audit firms from PCAOB oversight and return them to the AICPA peer review standards. The PCAOB places a huge
financial burden on small audit firms by “arm-chair quarterbacking” through their inspection process. The small audit firms have
no choice but to pass these costs on to small business issuers who are already straining from the economic downturn. Exempting
small audit firms from PCAOB oversight would be good for small business and would aid in the recovery of the entrepreneurial
spirit upon which this great country was founded.”
About Brad Beckstead
Mr. Beckstead is a CPA licensed in the State of Nevada. He has been managing partner of Beckstead and Watts, LLP since its
formation in 2002. Mr. Beckstead is now an audit partner with the Las Vegas-based firm of Seale and Beers, LLC, a PCAOB-
registered firm who also specializes in the audits of small public companies. Mr. Beckstead is also managing partner of United
Accounting Systems, LLC, a consulting firm who specializes in internal control and corporate governance compliance for small
public and non-profit companies. Mr. Beckstead was named one of the “Top 100 Most Influential People in Accounting” by
Accounting Today magazine in 2006 for his involvement in the case against the PCAOB.
Contact:
Brad Beckstead, CPA
Phone: +1 702 528 1984
brad@becksteadwatts.com
Beckstead and Watts, LLP announces settlement with PCAOB
LAS VEGAS, Feb. 22 – Brad Beckstead, Managing Partner of Beckstead and Watt, LLP, a small Henderson, Nevada CPA firm
specializing in audits of small public companies, announced today that his firm has settled a lawsuit against the Public
Company Accounting Oversight Board (PCAOB) wherein the PCAOB has agreed to withdraw its formal inspection report dated
September 28, 2005, and release Beckstead and Watts from an accounting investigation it launched in September 2005 without
any formal findings. Beckstead and Watts had been seeking a court order nullifying the inspection report after the firm won its
case in June 2010 against the PCAOB before the Supreme Court. The Supreme Court held that Congress had violated the
Constitution’s separation of powers by improperly insulating the Board from Presidential supervision and control.
Beckstead and Watts was one of the first small firms to be inspected by the PCAOB in 2004 after the Board had conducted
intensive inspections of the Big Four accounting firms. Says Beckstead, “The inspection was akin to the New York Giants playing
the local high school in a game of football. The inspectors were all from Big Four CPA firms (mostly from the defunct firm,
Arthur Anderson) with more than 7 years of experience each. Seven of them sat in my 1,000 square foot office for 14 days
looking at 16 audit files. The time I spent with my staff reacting and complying with the inspection requests put significant
burdens on our ability to conduct a profitable business.” The Board issued a fascially damning inspection report charging the
firm with 8 audit deficiencies. Beckstead fired back in his formal response to the inspection report by saying, “…It is…a constant
struggle for us to perform audits in conformity with the requirements of SOX and the Board working within the real cost constraints
of our clients. If the Board were to simply ignore these cost and efficacy issues, this segment of the market likely will not be able
to remain in existence”. The Board did not take a liking to the response and opened a formal investigation of the firm on the
same day it released the firm’s inspection report on its public website.
The formal investigation subjected the firm to additional burdens by selecting an additional five audit files, many from the client’
s date of inception forward. Says Beckstead, “The investigation was the straw that broke the camel’s back. I was tired and beat
down by the persistent harassment by the Board. It was clear to me that they wanted to make me the poster child for small audit
firms, and that they ultimately wanted me out of business.” However, Beckstead continued to fight back by providing all of their
requested items, which included electronic and paper correspondence and files from him and all of his staff. He even showed
up to a three-day deposition without being represented by an attorney after spending $20,000 in legal fees to a firm who
struggled to develop a defense strategy in response to the investigation. Beckstead states, “The Sarbanes-Oxley Act was
uncharted legal territory at that time. I was paying the law firm to educate themselves on how to deal with the PCAOB. It was
wasted money and would have ruined me financially if I had continued with the law firm.” Three days after the depositions,
Beckstead filed a joint lawsuit with the Free Enterprise Fund charging the PCAOB with a violation of separation of powers and
the Appointments Clause of the Constitution. Beckstead was contacted by an attorney with the Competitive Enterprise Institute,
a DC-based non-profit organization who fights big government, who stated that he was impressed by Beckstead’s response to the
inspection, and asked if Beckstead and Watts would be interested in joining the lawsuit. Beckstead explains, “At that point I was
so beat down by their constant harassment, that I had nothing to lose. I said, ‘Sign me up.’”
As they say, “The rest is history.” Beckstead lost the legal battle in two lower courts, but the DC-based legal firm of Jones Day
headed by Mike Carvin (who successfully represented George Bush before the Supreme Court in the 2000 election debacle)
persisted and appealed to the Supreme Court. In June 2010, the Supreme Court ruled in favor of Beckstead and Watts and
made a change to the language of the Sarbanes-Oxley Act allowing members of the Board to be removed “at will” rather than
“for cause”. Says Beckstead, “I was overjoyed by the results of the lawsuit. Our best case scenario would have been for the
Supreme Court to strike down certain provisions of the SOX Act and thereby toss it back to Congress so small business lobbyists
could push them for exemptive relief, but I think this case brought to light the burden that over-regulation and over-zealous
inspectors can place on the shoulders of small business. As a result of publicity for this case, Congress exempted small business
issuers from SOX 404 internal control audit requirements, so we still got mostly what we wanted. I still would like to see Congress
exempt small audit firms from PCAOB oversight and return them to the AICPA peer review standards. The PCAOB places a huge
financial burden on small audit firms by “arm-chair quarterbacking” through their inspection process. The small audit firms have
no choice but to pass these costs on to small business issuers who are already straining from the economic downturn. Exempting
small audit firms from PCAOB oversight would be good for small business and would aid in the recovery of the entrepreneurial
spirit upon which this great country was founded.”
About Brad Beckstead
Mr. Beckstead is a CPA licensed in the State of Nevada. He has been managing partner of Beckstead and Watts, LLP since its
formation in 2002. Mr. Beckstead is now an audit partner with the Las Vegas-based firm of Seale and Beers, LLC, a PCAOB-
registered firm who also specializes in the audits of small public companies. Mr. Beckstead is also managing partner of United
Accounting Systems, LLC, a consulting firm who specializes in internal control and corporate governance compliance for small
public and non-profit companies. Mr. Beckstead was named one of the “Top 100 Most Influential People in Accounting” by
Accounting Today magazine in 2006 for his involvement in the case against the PCAOB.
Contact:
Brad Beckstead, CPA
Phone: +1 702 528 1984
brad@becksteadwatts.com
OPINION: FEDERATION FEATURE
MAY 13, 2009
The PCAOB: An Obstacle to President Obama's Success
By KENNETH W. STARR and VIET DINH
As lawyers who have served in various posts in three Republican Administrations, we respectfully disagree with many of President
Obama's domestic policy initiatives.
But as members of a loyal American opposition, we certainly want the U.S. economy to succeed under his tenure. Moreover, as
attorneys who revere the U.S. Constitution, we want our nation's President to have all the authority this document gives him to
control the various federal agencies that carry out the nation's economic policy.
That's why we are now seeking review from the Supreme Court over a case we first brought during the administration of George W.
Bush challenging the structure of an agency that has great economic impact yet operates almost entirely outside the President's
control. We, along with Republican lead counsel Michael Carvin and attorneys with the free-market Competitive Enterprise
Institute, are asking the Court to give President Obama the power he is constitutionally entitled to exercise over this entity that
affects so many shareholders and entrepreneurs: the Public Company Accounting Oversight Board.
Created by the Sarbanes-Oxley Act of 2002, in the wake of the Enron and WorldCom accounting scandals, the PCAOB has broad
powers to set auditing standards for public companies and to investigate and discipline accounting firms that audit public
companies. Bills pending in Congress would expand the PCAOB's jurisdiction to non-public broker dealers as a response to the
Ponzi scheme at privately held Madoff Securities.
But before it is given any new power to supervise more entities, the PCAOB must itself be subject to supervision by President
Obama. He must have the power – as he does for virtually every other governmental entity Cabinet-level departments to the
Federal Reserve – to appoint PCAOB heads and remove them for cause if not at will.
In writing the 2002 law, Congress created a striking Constitutional anomaly – a powerful executive branch agency with a structure
that gives the President almost no say over its policies. With minimal oversight and no real supervision, the PCAOB decides which
accounting firms to inspect and how to conduct an investigation. It interprets sections of Sarbanes-Oxley, deciding, for instance,
what is an "internal control" under the act's Section 404. It was also given the power to levy an "accounting support fee," essentially
a tax on all public companies, to fund its operations.
Yet, under the law, the five members who run the PCAOB are appointed not by the President – but by the five commissioners of the
SEC. We hold that this violates the Constitution's Appointments Clause, which states clearly that principal "officers of the United
States" shall be appointed only by the President "with the advice of and consent of the Senate."
The "constitutional flaws in the PCAOB statute are not matters of mere etiquette or protocol," Judge Brett Kavanaugh of the federal
appeals court of the District of Columbia wrote last summer. "By restricting the President's authority over the board, the act renders
this Executive Branch agency unaccountable and divorced from Presidential control to a degree not previously not previously
countenanced in our constitutional structure."
That's why, in his strongly worded dissenting opinion, Judge Kavanaugh called our challenge to the PCAOB "the most important
separation-of-powers case regarding the president's appointment and removal powers to reach the courts in the last 20 years."
Unfortunately, the Justice Department of the Obama administration has followed the line of the Bush DOJ in saying our challenge
is much ado about nothing. While conceding that -- despite the statute's labeling of it a non-profit corporation -- the PCAOB is
indeed a government agency for constitutional purposes, the DOJ insists that the governance structure is fine because the PCAOB
leaders are merely "inferior officers."
While we contend that even if the PCAOB heads were somehow found to be lower-ranking officers, the structure would still not
pass not pass constitutional muster, it is interesting to note on striking characteristic about these officials said to be "inferior:" the
salaries they set for themselves. All five members of the PCAOB make more than President Obama himself.
In 2008, PCAOB Chairman Mark Olson took home $654,406 in 2008 and the four other members received $531,995. The U.S.
President, by contrast, makes $400,000 a year. The PCAOB salaries also exceed the cap of $500,000 set by the Obama
administration for chief executives of banks taking federal bailout dollars.
The PCAOB's lack of an accountable structure has likely contributed to what members of both parties see as its policy failures. It
did not foresee the disclosure issues for firms reporting subprime securities. Even staunch PCAOB defender Jane Bryant Quinn
strained in her syndicated column to put the best spin on this dismal record by saying that "subprime issues" were "at the top of
the board's priority list"
At the same time, during most of the six years since it was created by Sarbanes-Oxley, the PCAOB hurt legitimate entrepreneurial
companies by stretching the term "internal control" in Sarbanes-Oxley's section 404 to company minutiae that had no relevance to
investors. As a Journal editorial had noted, one public company's accountant was even auditing items like which employees had
office keys.
A Brookings-American Enterprise Institute study found that all of Sarbanes-Oxley's provisions – mostly enforced by the PCAOB –
have cost the U.S. economy more than $1 trillion in direct and indirect costs. And Democrats and Republicans have expressed
dismay at the increased costs of smaller companies going public – especially at a time when growth capital is so hard to come by
through the debt markets. Sen. John Kerry, D-Mass., for instance, has called for a task force to "make it easier for small
businesses to comply with the Sarbanes-Oxley by reducing their regulatory burden."
Should we prevail, senators like Mr. Kerry could very well raise those questions with the president's PCAOB nominees at their
confirmation hearings, just as is done with appointments of other principal officers. This increases our confidence of better public
policy outcomes under the constitutional process, even with a Senate and presidency under Democratic control.
Regardless, as Judge Kavanaugh pointed out in his eloquent appeals court dissent, "The framers of our constitution took great
care to ensure … that one individual would be ultimately responsible and accountable for the exercise of executive power. The
PCAOB contravenes these bedrock constitutional principles, as well as long-standing Supreme Court precedents, and it is
therefore unconstitutional."
Mr. Starr is the Duane and Kelly Roberts Dean at Pepperdine Law School and a retired federal appeals court judge. Mr. Dinh is professor of Law at
Georgetown University Law Center and a former assistant attorney general of the United States. They are counsel to the plaintiffs in Free Enterprise
Fund v. Public Company Accounting Oversight Board. John Berlau, director of the Center for Investors and Entrepreneurs at the Competitive Enterprise
Institute, assisted with this article.
Copyright 2009 Dow Jones & Company, Inc. All Rights Reserved
MAY 13, 2009
The PCAOB: An Obstacle to President Obama's Success
By KENNETH W. STARR and VIET DINH
As lawyers who have served in various posts in three Republican Administrations, we respectfully disagree with many of President
Obama's domestic policy initiatives.
But as members of a loyal American opposition, we certainly want the U.S. economy to succeed under his tenure. Moreover, as
attorneys who revere the U.S. Constitution, we want our nation's President to have all the authority this document gives him to
control the various federal agencies that carry out the nation's economic policy.
That's why we are now seeking review from the Supreme Court over a case we first brought during the administration of George W.
Bush challenging the structure of an agency that has great economic impact yet operates almost entirely outside the President's
control. We, along with Republican lead counsel Michael Carvin and attorneys with the free-market Competitive Enterprise
Institute, are asking the Court to give President Obama the power he is constitutionally entitled to exercise over this entity that
affects so many shareholders and entrepreneurs: the Public Company Accounting Oversight Board.
Created by the Sarbanes-Oxley Act of 2002, in the wake of the Enron and WorldCom accounting scandals, the PCAOB has broad
powers to set auditing standards for public companies and to investigate and discipline accounting firms that audit public
companies. Bills pending in Congress would expand the PCAOB's jurisdiction to non-public broker dealers as a response to the
Ponzi scheme at privately held Madoff Securities.
But before it is given any new power to supervise more entities, the PCAOB must itself be subject to supervision by President
Obama. He must have the power – as he does for virtually every other governmental entity Cabinet-level departments to the
Federal Reserve – to appoint PCAOB heads and remove them for cause if not at will.
In writing the 2002 law, Congress created a striking Constitutional anomaly – a powerful executive branch agency with a structure
that gives the President almost no say over its policies. With minimal oversight and no real supervision, the PCAOB decides which
accounting firms to inspect and how to conduct an investigation. It interprets sections of Sarbanes-Oxley, deciding, for instance,
what is an "internal control" under the act's Section 404. It was also given the power to levy an "accounting support fee," essentially
a tax on all public companies, to fund its operations.
Yet, under the law, the five members who run the PCAOB are appointed not by the President – but by the five commissioners of the
SEC. We hold that this violates the Constitution's Appointments Clause, which states clearly that principal "officers of the United
States" shall be appointed only by the President "with the advice of and consent of the Senate."
The "constitutional flaws in the PCAOB statute are not matters of mere etiquette or protocol," Judge Brett Kavanaugh of the federal
appeals court of the District of Columbia wrote last summer. "By restricting the President's authority over the board, the act renders
this Executive Branch agency unaccountable and divorced from Presidential control to a degree not previously not previously
countenanced in our constitutional structure."
That's why, in his strongly worded dissenting opinion, Judge Kavanaugh called our challenge to the PCAOB "the most important
separation-of-powers case regarding the president's appointment and removal powers to reach the courts in the last 20 years."
Unfortunately, the Justice Department of the Obama administration has followed the line of the Bush DOJ in saying our challenge
is much ado about nothing. While conceding that -- despite the statute's labeling of it a non-profit corporation -- the PCAOB is
indeed a government agency for constitutional purposes, the DOJ insists that the governance structure is fine because the PCAOB
leaders are merely "inferior officers."
While we contend that even if the PCAOB heads were somehow found to be lower-ranking officers, the structure would still not
pass not pass constitutional muster, it is interesting to note on striking characteristic about these officials said to be "inferior:" the
salaries they set for themselves. All five members of the PCAOB make more than President Obama himself.
In 2008, PCAOB Chairman Mark Olson took home $654,406 in 2008 and the four other members received $531,995. The U.S.
President, by contrast, makes $400,000 a year. The PCAOB salaries also exceed the cap of $500,000 set by the Obama
administration for chief executives of banks taking federal bailout dollars.
The PCAOB's lack of an accountable structure has likely contributed to what members of both parties see as its policy failures. It
did not foresee the disclosure issues for firms reporting subprime securities. Even staunch PCAOB defender Jane Bryant Quinn
strained in her syndicated column to put the best spin on this dismal record by saying that "subprime issues" were "at the top of
the board's priority list"
At the same time, during most of the six years since it was created by Sarbanes-Oxley, the PCAOB hurt legitimate entrepreneurial
companies by stretching the term "internal control" in Sarbanes-Oxley's section 404 to company minutiae that had no relevance to
investors. As a Journal editorial had noted, one public company's accountant was even auditing items like which employees had
office keys.
A Brookings-American Enterprise Institute study found that all of Sarbanes-Oxley's provisions – mostly enforced by the PCAOB –
have cost the U.S. economy more than $1 trillion in direct and indirect costs. And Democrats and Republicans have expressed
dismay at the increased costs of smaller companies going public – especially at a time when growth capital is so hard to come by
through the debt markets. Sen. John Kerry, D-Mass., for instance, has called for a task force to "make it easier for small
businesses to comply with the Sarbanes-Oxley by reducing their regulatory burden."
Should we prevail, senators like Mr. Kerry could very well raise those questions with the president's PCAOB nominees at their
confirmation hearings, just as is done with appointments of other principal officers. This increases our confidence of better public
policy outcomes under the constitutional process, even with a Senate and presidency under Democratic control.
Regardless, as Judge Kavanaugh pointed out in his eloquent appeals court dissent, "The framers of our constitution took great
care to ensure … that one individual would be ultimately responsible and accountable for the exercise of executive power. The
PCAOB contravenes these bedrock constitutional principles, as well as long-standing Supreme Court precedents, and it is
therefore unconstitutional."
Mr. Starr is the Duane and Kelly Roberts Dean at Pepperdine Law School and a retired federal appeals court judge. Mr. Dinh is professor of Law at
Georgetown University Law Center and a former assistant attorney general of the United States. They are counsel to the plaintiffs in Free Enterprise
Fund v. Public Company Accounting Oversight Board. John Berlau, director of the Center for Investors and Entrepreneurs at the Competitive Enterprise
Institute, assisted with this article.
Copyright 2009 Dow Jones & Company, Inc. All Rights Reserved
POINT OF CLARIFICATION: The Press like to attempt to discredit our firm by emphasizing that our2004 inspection report
identified 8 audit deficiencies. They fail to further clarify that we have satisfied the PCAOB and their inspection findings to the
fullest extent, and that we received the following "clearance" letter dated June 25, 2007:
identified 8 audit deficiencies. They fail to further clarify that we have satisfied the PCAOB and their inspection findings to the
fullest extent, and that we received the following "clearance" letter dated June 25, 2007: