Professor Elam

Monday April  17, 2017

Scott Maarcello was supposed to redeem KPMG's audit reputation. Instead he is now at the center of a scandal.

He is a three decade employee who became vice chair of audit, managing a workforce of thousands.

The accounting world was stunned last week when Mr. Marcello, KPMG's top audit official, was fired over a leak of confidential information. The firm said Mr. Marcello, who turns 54 this month, and four other partners were let go over the mishandling of a tip that gave the firm improper advance word about which of its audits its regulator planned to scrutinize in its annual inspections.

After his 2015 promotion from national leader of the firm's financial-services practice, he faced the challenge of satisfying KPMG's regulator, the Public Company Accounting Oversight Board, which in recent years had scored KPMG'S auditing performance below that of other big firms.

People who know Mr. Marcello said they were surprised such an experienced, knowledgeable auditor is accused of having gotten into such a fix.

"It's a huge and disappointing thing to happen to such a fine individual," said Dennis Beresford, former chairman of the Financial Accounting Standards Board, the U.S. accounting rule-writing panel, who knows Mr. Marcello from common ties to a professional organization. He called Mr. Marcello "personable and extremely competent."

Mr. Marcello declined to comment to a Wall Street Journal reporter at his Connecticut home. KPMG and the accounting board declined to comment.

Class, I call your attention to page 204-207 of our ethics text. Those pages feature the, and I am not making this up,KPMG Professional Judgment Framework.

It begins with this definition.

Judgment is the process of reaching a decision or drawing a conclusion where there are a number of possible alternative solutions.  It goes on to name five components of professional judgment.

That is all great but was completely ignored by Marcello.

Perhaps he succumbed to all three sides of the fraud triangle.

I have previously suggested that such continued ethical failures will eventually result in outside auditors becoming quasi employees of the Federal Government, Each incident like this draws the profession just that much closer.