KPMG Replaces Audit Chair in Wake of PCAOB Leaks

An employee at the accounting oversight board leaked news of upcoming inspections to a former PCAOB employee who'd moved to the audit firm.
David KatzApril 12, 2017

Faced with the revelation that six of its auditors had improperly received advance information from an employee of the Public Company Accounting Oversight Board about up upcoming inspections of the firm, KPMG yesterday announced that it was replacing its top auditor, Scott Marcello, with Frank Casal, a 38-year veteran with the firm.

Scott Marcello

Scott Marcello Scott Marcello, KPMG

Marcello, four other audit partners, and one employee were fired when the firm learned through an internal investigation that the six “either had improper advance warnings of engagements to be inspected by the PCAOB, or were aware that others had received such advance warnings and had failed to properly report the situation in a timely manner,” according to KPMG, which refused to provide names of the other five individuals.

“This issue does not impact any of the firm’s audit opinions or any client’s financial statements,” KPMG said in a press release.

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Contending that some of yesterday’s press reports on the ouster “have been inaccurate,” Manuel Goncalves, KPMG’s executive director of media relations and corporate communications, attempted to clarify matters in an email to CFO.

“[S]o just to be clear with you, first, KPMG discovered the issue and our regulators — the PCAOB and the [Securities and Exchange Commission] — were immediately informed. From that moment we have been and will continue to cooperate with them in addressing this situation,” Goncalves wrote.

“Second, outside counsel was engaged to perform an investigation, and based on information obtained through the investigation, the firm took quick and decisive personnel action — separating six individuals from the firm. They did not resign,” he added.

In late February, KPMG learned from an “internal source” that a person who had joined the firm from the PCAOB later received confidential information from an employee of the PCAOB and shared that information with other people at KPMG, according to the press release, which added that the information “potentially undermined the integrity of the regulatory process.”

When the audit oversight board learned that KPMG “had come into possession of confidential PCAOB inspection selection information, the PCAOB immediately commenced an internal investigation,” according to a PCAOB spokesperson.

“The investigation identified inappropriate disclosures by an employee, and the employee is no longer with the PCAOB. Separately, the PCAOB has taken steps to maintain and reinforce the integrity of its inspection process,” according to the spokesperson, who refused to comment further.

The PCAOB inspects registered public accounting firms to gauge their compliance with the Sarbanes-Oxley Act, the rules of the board and the SEC, and professional standards. In general, the PCAOB annually inspects firms that audit  more than 100 issuers.
In October 2016, KPMG was criticized by Sen. Elizabeth Warren (D.-Mass.) for failing to unearth information about illegal sales practices at Wells Fargo, an audit client of the firm. In 2015, questions similarly arose about the firm’s failure to uncover corruption at FIFA, the soccer governing body.
Casal, KPMG’s new audit head, is a former member of the firm’s board who “has served previously as the lead audit engagement partner on some of KPMG’s largest, publicly held financial services and industrial manufacturing clients,” Lynne Doughtie, the firm’s chair and CEO, said in a separate press release issued yesterday. The firm also named Jackie Daylor national managing partner for audit quality and professional practice on Tuesday.