TheCorporateCounsel.net

Yesterday, the SEC announced settled enforcement proceedings against Marcum LLP, for what it contends were systemic quality control failures & audit standards violations in connection with audit work for hundreds SPAC clients. This excerpt from the SEC’s press release provides additional details on the proceeding:

Over a three-year period, 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 strain of this growth, however, exposed substantial, widespread, and pre-existing deficiencies in the firm’s underlying quality control policies, procedures, and monitoring. These deficiencies permeated nearly all stages of the audit process and were exacerbated as Marcum took on more SPAC clients.

Moreover, in hundreds of SPAC audits, Marcum failed to comply with audit standards related to audit 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 percent of audits reviewed, with even more frequent, nearly wholesale violations found as to certain audit standards across Marcum’s SPAC practice.

The SEC’s order alleges that “Marcum’s quality control and audit standard failures permeated most stages of engagement work—from client acceptance to risk assessments, audit committee communications, audit documentation, assembly and retention of audit documentation, engagement quality reviews, technical consultations, due professional care, and engagement partner supervision and review. At nearly every stage, Marcum lacked sufficient policies and procedures to provide reasonable assurance that engagements were conducted in accordance with professional standards.”

Without admitting or denying the SEC’s allegations, Marcum agreed to an order finding that the firm engaged in improper professional conduct within the meaning of Rule 102(e), violated multiple audit standards across numerous engagements, and violated Rule 2-02(b)(1) of Regulation S-X. Marcum also agreed to pay a $10 million penalty & to undertake remedial actions, including retaining an independent consultant and abiding by certain restrictions on accepting new audit clients.

– John Jenkins