H&R Block reported that it ha dropped its auditor, KPMG, because two of the tax-services company’s three newest directors are monitoring the Big Four firm’s deferred prosecution agreement with the Department of Justice.

The Block directors overseeing the accounting firm’s adherence to its prosecution agreement with the U.S. Attorney for the Southern District of New York are Richard Breeden, the former Securities and Exchange Commission chairman whose hedge fund recently won a proxy fight with Block, and L. Edward Shaw, a senior managing director of Breeden’s hedge fund.

Block has been looking for a new independent auditor. “The audit committee concluded that it was necessary to replace KPMG as the company’s independent auditor so that the new directors would be able to participate fully on the board,” Block said in a press release.

In August 2005, KPMG entered into a deferred-prosecution agreement that enabled it to avoid an indictment over the sale of questionable tax shelters. The deal required the auditor to pay $456 million, admit wrongdoing, and accept Breeden as an outside monitor.

On January 3, after prosecutors said the firm had cooperated with a U.S. Justice Department probe, a federal judge in New York threw out a criminal charge against KPMG.

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