Big Four firm KPMG LLP has shaken up its audit team, with the head of the practice, Scott Marcello, leaving the firm along with four other partners and one employee after it was discovered that they had improper advanced warning of regulatory inspections.

The departing individuals either receiving advanced notice of which audit engagements were going to be inspected by the Public Company Accounting Oversight Board, or knew that the information had been improperly shared, either of which constitutes a violation of the firm’s Code of Conduct.

According to the firm, an internal source alerted its leadership in early February that a KPMG employee who had previously worked at the PCAOB was getting the confidential information from a PCAOB employee.

In a statement, KPMG said that it “immediately reported” the situation to the board and the Securities and Exchange Commission, and retained outside counsel to conduct an investigation.

“KPMG has zero-tolerance for such unethical behavior,” firm chairman and CEO Lynne Doughtie said in a statement. “Quality and integrity are the cornerstones of all we do and that includes operating with the utmost respect and regard for the regulatory process. KPMG is committed to the highest standards of professionalism, integrity and quality, and we are dedicated to the capital markets we serve. We are taking additional steps to ensure that such a situation should not happen again.”

The firm said that the improper conduct does not change any of its audit opinions, or any client’s financial statements.

“The PCAOB takes the integrity of its oversight processes very seriously," board spokesperson Colleen Brennan said in a statement. "When the PCAOB recently learned that a registered firm had come into possession of confidential PCAOB inspection selection information, the PCAOB immediately commenced an internal investigation. 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.”

Marcello had been U.S. vice chair of audit since July 2015, and sat on the firm’s Management Committee.

Shortly after announcing Marcello's departure, the firm announced that Frank Casal had been appointed vice chair of audit.

Casal is a former member of the firm's Board of Directors, and has been with the firm for 38 years, serving as lead audit engagement partner for some of its largest public financial services and industrial manufacturing clients.

“Frank is a proven leader and is widely regarded as a champion of professionalism and integrity,” said Doughtie in a statement. “His strong commitment to professional excellence and his intense focus on audit quality will provide valued and effective leadership. Frank will work closely with the audit leadership team to execute and implement the practice’s strategic priorities.”

In addition, Jackie Daylor has been named national management partner for audit quality and professional practice. She has been with the firm for 28 years, and is a member of its Board of Directors and its Professional Practice, Ethics and Compliance Committee.

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Daniel Hood

Daniel Hood

Daniel Hood is editor-in-chief of Accounting Today and Tax Pro Today, and has covered the tax and accounting field for over 20 years.