The Public Company Accounting Oversight Board (PCAOB), created by the Sarbanes-Oxley Act of 2002, has rejected an Arizona audit firm's application to audit publicly traded companies, the Washington Post reported.
As part of its charge to clean up the accounting industry after a spate of scandals rocked the profession, the PCAOB conducts regular inspections of firms that audit public companies. James C. Marshall PC, based in Scottsdale, AZ, has become the first company to fail the inspection.
Since inspections began last September, the board has approved 840 audit firms and 143 applications are pending, the Post reported.
In disapproving Marshall's application, the board said Marshall "failed to disclose" in its application that the firm was the subject of a disciplinary proceeding. The Post reported that the board also cited Marshall's alleged failure to enlist another accountant to provide a second opinion on the firm's work and to keep documents backing up the firm's conclusions. Marshall had promised to take those steps after peer reviewers criticized the firm's record-keeping and other practices in 2000 and 2001, the Post reported.
Board member Kayla J. Gillan told the Post that the board's decisions are based 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 Post.
James C. Marshall, the president of the company, did not return calls from the Post for comment and he did not appeal the board's decision, which hastened the rejection process. Former clients have told the SEC in filings that they have hired new auditors, the Post reported.