Marvell hiring of conflicted audit firm under SEC scrutiny

Marvell Technology Group Ltd. is being investigated by the Securities and Exchange Commission for picking an audit firm that already had provided prohibited services to it.

Marvell announced on Feb. 23 that the company had picked Deloitte as its new audit firm. However, Deloitte has provided nonaudit services to the company that are prohibited by the Sarbanes-Oxley Act of 2002. The services — payroll services in France and internal-audit services in India — have been concluded for the most recent period, according to the filing. Marvell and Deloitte together decided that Deloitte’s “objectivity or its impartiality” would not be affected by the extra work.

That is something the SEC is examining, according to a person familiar with the situation.

A spokesman for Deloitte said that the engagements “are not recurring.” He declined to provide further comment on the firm’s appointment as auditor.

A spokeswoman from Marvell MRVL, +0.10%  did not respond to requests for comment.

The semiconductor company has said that when its audit committee evaluated replacements for its previous auditor, PricewaterhouseCoopers, which resigned in October, all of the firms interviewed had conflicts that violated auditor-independence rules.

Read earlier story: Marvell rocked on accounting fears

Plus: ‘Tone at the top’ plays key role in Marvell accounting matter

Marvell first disclosed an internal investigation into PwC’s concerns in a Dec. 7 press release.

Marvell said that its audit committee was conducting an independent investigation of the accounting and internal-control matters raised by PwC, including revenue recognized in the first and second quarters of fiscal 2016 and the fourth quarter of fiscal 2015, the accrual of a litigation reserve, and the initial assertion by the company’s CEO and chairman of ownership of certain patent rights. Marvell also disclosed in that press release that the company had been contacted by the SEC and the U.S. attorney’s office regarding its investigation.

Lynn Turner, the former chief accountant of the SEC, said PwC’s resignation and the hiring of an auditor with known prior conflicts raise serious questions as to the competency of the audit committee. “They stand idly by while tone-at-the-top issues occur,” said Turner, “and then fail to ensure that a ‘backup’ audit firm’s independence can be trusted.”

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