Wilmer Hale
MONTH-IN-BRIEF (Apr 2022)
[lwptoc]
Securities Regulation
PCAOB Disciplines Big Four Partner for Failure to Supervise
By Thomas W. White, Retired Partner, WilmerHale
In its first major enforcement action since the appointment of new Chair Erica Y. Williams, the Public Company Accounting Oversight Board (“PCAOB”) sanctioned Scott Marcello, former Vice Chair of Audit of the Big Four accounting firm KPMG LLP, for failure reasonably to supervise senior members of KPMG’s audit practice. The matter arose from a major scandal in which KPMG personnel, seeking to improve the firm’s results in PCAOB inspections, obtained confidential PCAOB information regarding audits that the PCAOB would select for review during its 2016 and 2017 inspections of KPMG, and used the information to enhance the audit documentation for the selected 2016 audits. (KPMG paid an SEC fine of $50 million for this and other violations, and six individuals were criminally charged and/or sanctioned by the SEC.)
In a settled disciplinary order, the PCAOB found that Marcello was a “supervisory person” of KPMG by virtue of his position as head of KPMG’s audit practice and responsibility for implementation and monitoring of KPMG’s audit-related quality control policies and procedures. He had supervisory responsibility over subordinates, including KPMG’s national head of Professional Practice, who participated in the scheme to obtain and use PCAOB inspection information. Marcello became aware in 2016 and 2017 from his subordinates that they had obtained information about audits selected by the PCAOB for inspection and planned to use the information to enhance documentation for those audits. He failed to take appropriate action in 2016 and only reported the receipt of confidential information in 2017 after learning of others’ negative reaction to KPMG’s having the information. The PCAOB found that Marcello had violated the supervision provisions of the Sarbanes-Oxley Act. It censured him and fined him $100,000.