WSJ: Former Partner at KPMG Faces Trial in PCAOB Scandal

An ex-partner at Big 4 firm KPMG faces trial Monday for his part in an effort to obtain confidential information that would reveal which audits the PCAOB planned to review in its annual firm inspections.

Prosecutors have termed the scandal a “steal the exam” scheme, as it would give KPMG more time to prepare for the inspections, the Wall Street Journal reports. The PCAOB inspections are seen as a report card on a firm’s audit performance. KPMG, whose audits of GE and Wells Fargo were widely criticized, had not performed well on past inspections.

David Middendorf, who was fired as a partner in 2017, is charged with conspiracy and wire fraud in federal court in Manhattan, as is Jeffrey Wada, a former PCAOB inspections leader. They have pleaded not guilty. Middendorf had served as the firm’s national MP for audit quality and professional practice.

The PCAOB says two yearly inspections were compromised by KPMG’s advance knowledge.

It replaced some KPMG audits it initially reviewed with new ones, which had “a much higher rate of problems, illustrating the extent to which the advance access to information could have helped KPMG,” the Journal reported.

The trial, expected to last about four weeks, will include testimony from PCAOB and SEC officials.