Spokane accountants suspended
Two Spokane accountants have received professional suspensions imposed by a group that oversees auditing practices involving public companies.
The Public Company Accounting Oversight Board, based in Washington, D.C., ordered a one-year suspension for John J. Webster, 50, and a two-year suspension for Kevin J. Williams, 59. The two were partners in the Spokane firm Williams & Webster, P.S. until last year.
Webster no longer works at the firm, according to a company spokesman.
The suspensions only affect their ability to perform accounting services for public companies. The PCAOB, created by Congress under the Sarbanes-Oxley Act of 2002, regulates accountants who work for any company that sells publicly traded stock.
Williams & Webster, the company, also received a reprimand in the PCAOB ruling, dated June 12.
Williams and Webster agreed to sign the order but they do not admit any wrongdoing.
This was only the eighth disciplinary action taken by the PCAOB since it was formed. A full copy of the Williams & Webster ruling is at www.pcaobus.org.
The PSAOB began investigating the Spokane company following its audit of the 2003 financial statements of Diatect International, a mineral company based in Hebner, Utah.
Diatect, which is still in business, is traded publicly among pink-sheet or penny-stock companies.
In a summary ruling, the PCAOB investigators concluded “respondents failed to exercise due professional care, failed to exercise professional skepticism and failed to obtain sufficient competent evidence to afford a reasonable basis for an opinion regarding the financial statements” of Diatect.
Steve Becker, a Spokane-based public relations consultant hired by Williams & Webster, said the issues involved in the ruling “are a very complicated matter.”
Added Becker: “This does not affect the day to day operations of Williams & Webster. They have shifted personnel within the office and will continue to meet the needs of their clients.”
Williams is the founding partner of the accounting firm, whose offices are at 601 W. Riverside Ave. The ruling said he was the lead engagement partner in the Diatect audit. After the two-year suspension he is required to petition the PCAOB if he wants to work for public companies, said PCAOB spokesman Mike Shokouhi . Webster does not face that requirement after his one-year suspension.
During the 2004 audit Webster was the concurring review partner, according to the PCAOB ruling.
The two were hired by Diatect to review and audit the company’s financial records, including a complex purchase of 640 acres of land in Oregon and its subsequent resale to another shareholder, who had set up a shell company in Virginia.
The shell company paid no money to Diatect at the time the sale was booked. Even so, Diatect’s managers reported a gain of $12 million because of the sale, amounting to 74 percent of its total assets for fiscal year 2003.
Those circumstances were odd enough that Williams wondered, in an e-mail sent to some Diatect officers during the audit, whether “it is realistic to expect a minerals site — as yet not producing — can actually generate 7 million in cash in only 18 months in order to make the first note payment to Diatect?”
In the end, the PCAOB investigators faulted Williams for relying on Diatect managers’ explanations of the transaction. The investigators also noted Webster, who was the review partner for the audit, developed “significant questions” about the financial records of Diatect but still concurred with Williams’ conclusions.