KMPG Fires Head of U.S. Audit, Others After Improper Warning of Inspection

KPMG has fired the head of its U.S. audit practice, four other partners and one employee after the Big 4 firm found they improperly received advance warning of audits the PCAOB planned to inspect.

KPMG says they violated the firm’s Code of Conduct. The PCAOB, which oversees just under 2,000 accounting firms, says that one of its employees had left over the matter and that it had taken steps to “reinforce the integrity of its inspection process,” the Financial Times reported.

KPMG said it discovered in February that an employee who had joined the company from the PCAOB had received confidential information from someone who still worked there about which audits would be inspected. The new employee then shared the information with other KPMG staff. All six fired employees, “either had improper advance warnings of engagements to be inspected by the PCAOB” or were aware that others had received this information but “failed to properly report the situation in a timely manner,” the firm reported.

The five partners included Scott Marcello, vice chair of its U.S. audit practice. “We are taking additional steps to ensure that such a situation should not happen again,” says Lynne Doughtie, KPMG CEO.

The firm says a whistleblower reported the information and the firm then reported the leak to the PCAOB and SEC and hired an outside law firm to conduct an investigation.

James Doty, chairman of the PCAOB, says, “This demonstrates the importance the accounting firms and the investing public place on our inspection results, and warrants a hard look by us at what is needed to reinforce the integrity of our inspection process.”

Marcello will be replaced by Frank Casal, a KPMG veteran of 38 years. The firm also replaced its national managing partner for audit quality and professional practice, naming Jackie Daylor, who is already on the firm’s board. David Middendorf previously held the role.

KPMG said the affair would not have any effect on any client’s financial statements.