Important Audit Professional Takeaways from Botta v. PwC Closing Arguments

Closing arguments were held on April 13 in the bench trial of audit whistleblower Mauro Botta vs. PricewaterhouseCoopers. Botta, a former PwC senior manager, claims that he was wrongfully terminated by PwC in retaliation for making a whistleblower report to the SEC. Botta’s whistleblower report alleges that PwC had compromised its independence by acquiescing to client requests that Botta be removed from various audits. Botta has asserted that in doing so, PwC put profits and client retention ahead of independence and professionalism.

In fairness to PwC, it appears that in each instance, Botta was not removed from each audit team until each audit was fully completed and signed off by those principally responsible for the audit, including Botta. This timing may weigh in favor of PwC because such sign-offs typically assert that the audit was conducted in accordance with professional standards, including the applicable independence rules.

My lay person understanding from the closing arguments is that under existing labor laws, whistleblowing to the SEC is a “protected” activity for which whistleblowers, acting in good faith, cannot be terminated. PwC says Botta was not terminated because he blew the whistle. Instead, PwC asserts that Botta’s termination was the result of alleged falsification of internal control documentation to resolve a PwC concern about a client deficiency in its internal controls.

I do not know enough details about this trial and the nuances of the law to tell you which side will prevail. But as I listened to the closing arguments, it brought back memories of the conflicting pressures and tensions in real-world public accounting that threaten to undermine audit quality. The biggest pressure points are:

1. The conflicting pressures between client retention and doing the right thing;
2. The conflicting pressures between profitability and audit quality; and
3. The conflicting pressures between hitting deadlines and getting all issues satisfactorily investigated and resolved.

A big part of what makes public accounting challenging is that these pressures inevitably give rise to tension between members of the audit team when differing views arise.

It is almost inevitable that all audit professionals will encounter situations where they find themselves on the horns of dilemma over how to handle a differing view with a supervisor. Below are some thoughts that audit professionals should find helpful if and when they find themselves in one of these situations.

The difficult supervisor

Some supervisors can be excessively demanding and dictatorial. As pressure mounts, the supervisor’s demeanor becomes increasingly autocratic. Subordinate performance problems may be handled by visits to the whipping shed. Supervisors with a dictatorial style are typically detected, counseled, and weeded out if they fail to demonstrate timely improvement. But some survive by using two different personas: One persona is the upward-facing persona of a consummate professional, while the downward-facing persona is the dictatorial supervisor.

I mention this because I have seen how the pressures for productivity, audit quality, and meeting deadlines can affect supervisor behavior. There is a strong possibility that auditors may encounter a dictatorial supervisor who will trample on their auditor professionalism. It is for this reason that audit professionals should maintain a keen understanding of the AICPA Code of Professional Conduct and the policies their firm may have with respect to the resolution of differing views. There are two headlines to bear in mind from the AICPA Code of Professional Conduct:

1. The Code prohibits professionals from subordinating their judgment to supervisors. In other words, if you have a differing view, do not automatically assume your supervisor is right. Talk to your supervisor to understand the basis for the supervisor’s view. If that does not resolve the differing view and the matter is material, you have a duty to seek resolution. Sometimes that means talking to others on the engagement team with higher levels of authority. And if that does not resolve the issue, you may need to request a formal consultation.

2. As a supervisor, you have a duty to not apply “undue influence” over subordinates. The supervisor needs to listen when a subordinate expresses a differing view and must work constructively to resolve the differing view. If the matter is material, the supervisor and subordinate should jointly discuss the matter with the more senior members of the engagement team. If that does not resolve the matter, the supervisor has a duty to seek a consultation with appropriate involvement from both the supervisor and the subordinate. You should be wary of situations where your supervisor says, “I talked to the partner and he agreed with my view.”

It is human nature for many people to avoid confrontation and conflict. Some may see the expression of a contrary view as putting their career at risk. When it comes to material matters, speaking up is not an optional activity. The framework described above is an important element of the profession’s quality control to assure the engagement team reaches an appropriate conclusion when differing views arise.

During my nine years leading PCAOB inspection teams in the field, I spent a considerable amount of time at the offices of the largest audit firms across the country. I found it virtually impossible to get a cup of coffee or walk to the restroom without encountering signage that said, “See Something – Say Something!” or “Professional Ethics are the Foundation of Audit Quality,” or “We Want to Hear from You if Something Troubles You!” The “tone at the top” at each of the large firms should be conducive and supportive of subordinates who speak up.

Remember: It is your duty to speak up and, if all else fails, consultation is the logical next step.

It is important to remember that the AICPA Code of Professional Conduct applies to all licensed CPAs, whether they are working for a public accounting firm, a company, or a regulator. These rules apply if the employer hired the CPA for their skills as a licensed CPA.

About the author:

Robert Conway is a retired Big 4 audit partner and former leader of a PCAOB regional office. Mr. Conway recently published a book titled, “The Truth About Public Accounting.” He currently provides expert witness services in controversies pertaining to GAAP and PCAOB compliance. Mr. Conway’s website is at www.TheTruthAboutPublicAccounting.com and his email address is RetiredAuditPartnerACAP@Live.com.