Sept. 19 (Bloomberg) -- A federal appeals court was asked to reconsider its August ruling upholding the legality of the Public Company Accounting Oversight Board, the auditing industry watchdog created by the Sarbanes-Oxley Act.

The Free Enterprise Fund, a Washington-based group that advocates small government, and accounting firm Beckstead and Watts LLP of Henderson, Nevada, today petitioned the full U.S. Appeals Court for the District of Columbia Circuit to review the case. A three-judge panel ruled 2-1 on Aug. 22 to reject the argument that the board's makeup was unconstitutional.

``We just think it's an extraordinarily important case,'' said Christian Vergonis of Jones Day in Washington, representing Beckstead. Judge Brett Kavanaugh's dissent was compelling enough that ``we thought his colleagues on the court will be interested in hearing the case,'' Vergonis said in an interview.

The court has 13 judges, 10 of whom are active. The judges may or may not decide to hear the case.

The PCAOB was set up in 2002 under Sarbanes-Oxley, which strengthened regulation of businesses after an accounting fraud triggered the collapse of Enron Corp. Members can be removed only ``for good cause'' by the U.S. Securities and Exchange Commission.

Beckstead said the process to name board members violated the Constitution's separation of powers clause, which gives the president the power to make appointments, with Senate consent. The president ``has absolutely no ability to control or supervise the board's membership or activities, and thus no recourse if the board enforces the securities laws in an unwise or even corrupt manner,'' Beckstead argued in appeal briefs.

Appeals court Judge Judith Rogers, an appointee of President Bill Clinton, wrote for the majority that PCAOB members are ``not required to be appointed by the president.''

The case is Free Enterprise Fund v. Public Company Accounting Oversight Board, 07-5127, U.S. Court of Appeals for the District of Columbia.

To contact the reporter on this story: Ian Katz in Washington at ikatz2@bloomberg.net;

Last Updated: September 19, 2008 17:00 EDT