SEC, PCAOB Charge Marcum with Significant Quality Control Violations

New York-based IPA 100 firm Marcum (FY21 net revenue of $799 million) has agreed to pay $13 million in fines in response to SEC and PCAOB charges that the firm failed to impose stringent quality controls and violated auditing standards in connection with hundreds of special purpose acquisition companies (SPACs) and other clients.

Marcum agreed to settle the investigations, without admitting or denying the claims, by paying $10 million to the SEC and $3 million to the PCAOB. The firm must also add an audit committee and a “chief quality officer.”

Over three years, Marcum more than tripled its number of public company clients, the majority of which were SPACs, including auditing more than 400 SPAC initial public offerings in 2020 and 2021, the SEC stated. The growth exposed “substantial, widespread and pre-existing deficiencies in the firm’s underlying quality control policies, procedures and monitoring,” according to a June 21 SEC release.

Additionally, Marcum violated audit standards related to documentation, engagement quality reviews, risk assessments, audit committee communications, engagement partner supervision and review, and due professional care. “Depending on the audit standard at issue, violations were found in 25%-50% of audits reviewed, with even more frequent, nearly wholesale violations found as to certain audit standards across Marcum’s SPAC practice,” the SEC stated.

According to The Wall Street Journal, a Marcum spokesman said, “This process with the SEC and PCAOB identified critical areas for improvement in the firm’s internal quality control and documentation processes. We remain committed to maintaining the full confidence of our clients, regulators and investors.”

The SEC’s enforcement division director, Gurbir Grewal, and PCAOB chair Erica Williams contend that Marcum put profits over audit quality. “Its aggressive pursuit of business growth far outpaced any commensurate development of an already weak system of quality controls,” said Grewal. “From 2020 through 2021, the market saw more than 860 SPACs complete IPOs and Marcum audited nearly half of them, without adequate consideration for its ability to serve as gatekeeper.”

Williams, in a prepared statement, said, “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 requirement is a first for the watchdog. Marcum must create and fill a chief quality officer role and create an audit oversight committee.

Marcum has agreed to retain an independent consultant to review and evaluate its audit, review and quality control policies and procedures, as well as follow limits placed on accepting new audit clients.

The PCAOB’s penalty is the largest it has imposed on a non-affiliate firm, which is an audit firm that is not a member of a global network.

 

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