Imposing $3 Million Fine and Requiring First-Ever Changes to Supervisory Structure, PCAOB Sanctions Marcum LLP for Significant Quality Control Violations
The $3 million fine is the largest penalty imposed on a non-affiliate firm
The Public Company Accounting Oversight Board (PCAOB) today announced a settled disciplinary order sanctioning Marcum LLP (“the firm”) for violations of PCAOB rules and quality control standards.
The order imposes a $3 million civil money penalty on the firm, which is in addition to the $10 million penalty imposed today by the U.S. Securities and Exchange Commission (SEC) against Marcum LLP in the Commission’s proceeding concerning related conduct. The PCAOB’s penalty is the largest it has imposed on a “non-affiliate firm,” meaning an audit firm that is not a member of a global network.
Several of Marcum LLP’s violations of PCAOB rules and quality control standards were the result of the firm accepting a substantial number of audit clients, including hundreds of special purpose acquisition company (SPAC) audits, resulting in a dramatic increase in its issuer audit practice between January 2020 through October 2021. Marcum’s quality control system did not provide reasonable assurance that it could execute these audits with competence.
“If firms put profits ahead of PCAOB standards that protect investors, there will be consequences,” said PCAOB Chair Erica Y. Williams. “Today’s order makes clear, the PCAOB will use every tool at our disposal, including requiring a firm to change its supervisory structure, in order to ensure compliance with PCAOB standards.”
The Division of Enforcement and Investigations closely coordinated its investigation of Marcum LLP with the SEC Division of Enforcement.
“Firms have a responsibility to undertake only those engagements that they can reasonably expect to be completed with professional competence,” said Robert E. Rice, Director of the PCAOB’s Division of Enforcement and Investigations. “When they fail to do so, and fall short of PCAOB standards, they will be held accountable. We at the PCAOB thank the SEC for its significant assistance in this matter, which reflects the strong working relationship between the PCAOB and SEC enforcement staff.”
The PCAOB found that Marcum LLP’s system of quality control failed to provide reasonable assurance that the firm would:
- Undertake only those issuer engagements that the firm could reasonably expect to be completed with professional competence and appropriately consider the risks associated with providing professional services in the particular circumstances;
- Ensure that partner workloads were manageable to allow sufficient time for engagement partners and engagement quality review partners to discharge their responsibilities with professional competence and due care;
- Timely assemble complete and final sets of audit documentation;
- Timely and accurately file Form APs;
- Perform procedures to identify and assess the risks of material misstatement at the assertion level with respect to SPAC audits;
- Ensure that engagement teams were consulting with individuals within or outside the Firm, when appropriate, when dealing with complex issues;
- Perform sufficient procedures to determine whether certain matters were critical audit matters; and
- Make all required communications to issuer audit committees.
Without admitting or denying the findings, the firm settled with the PCAOB and consented to a disciplinary order. In addition to the civil money penalty on the firm and a censure, the order requires the firm (1) to engage an independent consultant who will review and make recommendations concerning its quality control policies and procedures and (2) to implement all those recommendations.
Beyond requiring certain training for all audit staff, the order, among other things, requires Marcum LLP to make functional changes to its supervisory structure related to the firm’s system of quality control. This is the first time a PCAOB settled disciplinary order has ever required functional changes to the quality control supervisory structure of a registered firm. These changes – requiring the firm to create a new role and hire an individual to serve as head of the firm’s quality control system (“Chief Quality Officer”) and to create a committee responsible for the oversight function for the audit practice (“Audit Oversight Committee”) – were important and necessary measures to address the significant quality control violations identified in the PCAOB’s investigation.
PCAOB enforcement staff members Stephen D’Angelo, Stefan Hagerup, Elliott C. Mogul, and Thomas Barry conducted the investigation. Kyra C. Armstrong and Raymond J. Hamm supervised this matter. The PCAOB oversees auditors’ compliance with the Sarbanes-Oxley Act, provisions of the securities laws relating to auditing, professional standards, and PCAOB and SEC rules. Further information about the PCAOB Division of Enforcement and Investigations is available on the PCAOB website.
Firms or individuals wishing to report suspected misconduct by auditors, or to self-report possible misconduct, may visit the PCAOB Tips and Referrals page.
About the PCAOB
The PCAOB is a nonprofit corporation established by Congress to oversee the audits of public companies in order to protect investors and further the public interest in the preparation of informative, accurate, and independent audit reports. The PCAOB also oversees the audits of brokers and dealers, including compliance reports filed pursuant to federal securities laws.
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