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February 8, 2023

PCAOB Giving Big 4’s Legal Services the Stinkeye

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PwC announced last month that it was launching a law firm in the U.S. because, honestly, who’s going to stop them? Plus, Deloitte wasn’t going to do it, so someone was bound to snatch up the opportunity.

PwC’s U.K. affiliate even put out a report recently that found “law firms are not keeping pace with cutting-edge technologies and growing client expectations.” And somewhere, a PwC executive is talking about how, “We have an obligation to serve the demands of the capital markets,” while other people in the room nod.

Anyway, the announcement of PwC’s U.S. law firm, ILC Legal, LLP raised more than a few eyebrows. “WHAT ABOUT AUDITOR INDEPENDENCE,” people cried, shaking their fists. And the collective response was: ¯\_(ツ)_/¯. The Big 4 firms have been flouting independence for decades and this is merely the latest variation of the nose-thumbing.

One of the chief recipients of that snook is the Public Company Accounting Oversight Board which, according to this Bloomberg Law article, is “monitoring the accounting firms’ expansion into legal services”:

“Existing independence requirements would preclude an issuer’s auditor, or affiliates of the auditor, from providing legal services to that issuer or any of that issuer’s affiliates,” PCAOB spokeswoman Colleen Brennan said. “The PCAOB monitors for compliance with that requirement and other independence requirements.”

I’ll go out on a limb and suggest that PwC won’t be as clumsy as, let’s say, the former head of audit for KPMG, when it comes to navigating the independence and compliance rules, just as long as they keep the Oscars bumblers away from this.

Regardless, if I was a PCAOB inspector badgering a PwC team with requests, you better believe I’d be extra badgery about any connections with ILC Legal. And after I was done badgering them about that, I’d badger them some more.

In the beginning, I’m sure this new law firm won’t go near PwC audit clients. But soon enough, PwC audit clients might hear about this hot legal action that they’re missing out on; some enterprising people at PwC will start talking about the “crossover opportunities” and conversations about what constitutes “legal services” will be had. Like, does a law firm only provide “legal services”? Or could ILC Legal also provide non-audit services to audit clients that audit committees won’t consider to be prohibited?

Who knows! This sounds like a job for some innovative lawyers. If PwC is a little shorthanded in that regard, maybe they can poach some of Uber’s legal team.


Image: Wistula/Wikimedia Commons

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