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PwC Greece and Partner Get Punished For Running Out of F*cks to Give About This Awful Audit

a red cone at the end of a dark hallway, warning

The PCAOB today announced settled disciplinary orders sanctioning Greece-based PricewaterhouseCoopers Auditing Company SA (PwC Greece) and its partner Nicos George Komodromos for violations of PCAOB rules and standards in connection with the audit of the 2016 financial statements of Aegean Marine Petroleum Network Inc. Sometimes the PCAOB deserves to be criticized for being nitpicking paper-pushers but in this case we’ll go ahead and give them the point.

According to the news release, Komodromos and PwC Greece knew going into it the audit came with a parade of the reddest of red flags to rival that of a CCP parade. They understood that an executive at Aegean with significant control over the company had previously been criminally convicted for fuel smuggling involving “virtual invoicing” and been accused of a variety of other criminal activity. As such, because of concerns about the integrity and ethics of management, Komodromos and the engagement team assessed a significant risk of material misstatement due to fraud.

Did the engagement team proceed to check every box on this audit? Obviously not if we’re talking about a PCAOB order and penalty of $3,080,000.

Komodromos and the engagement team disregarded and did not resolve inconsistencies from certain contradictory audit evidence about the unusual transactions with the four customers, despite the heightened risks of fraud at Aegean and the engagement team’s initial concerns about the transactions. This contradictory evidence should have been viewed as red flags that raised substantial doubt about management’s assertions in Aegean’s financial statements related to the four customers’ transactions and balances.

Well how bad could it be…

For example, the firm engagement team encountered substantial difficulties obtaining street addresses for the four customers from Aegean to use in the firm’s accounts receivable confirmations to those customers. When the engagement team finally received the street addresses, the team requested that an affiliated PwC network firm visit the customers at those addresses to verify their existence. When the PwC network firm visited the first three addresses, it found that one address did not exist and two were residential apartment buildings with no businesses located there. Although the affiliate found no evidence that the customers were located at the addresses, Komodromos and the engagement team failed to respond appropriately to that and other contradictory audit evidence – or even document the attempted site visits in the workpapers. Instead, Komodromos instructed the team to cancel the remaining site visit and relied on other inadequate audit evidence to issue an audit report containing unqualified opinion.

In 2018, Aegean publicly disclosed that its audit committee and board of directors had concluded that the transactions with the four customers lacked economic substance, as the relevant customers were shell companies with no material assets or operations and were owned or controlled by former employees or affiliates of the company. In 2021, PwC Greece agreed to pay $14.9 million to settle a lawsuit brought on by Aegean Marine shareholders who accused the firm of failing to catch a $300 million fraud. Deloitte Greece also got tied up in Aegean Marine’s mess, having audited the company  from 2006 through 2015 before PwC dumbly took on this shitty client.

Without admitting or denying the Board’s findings, PwC Greece and Komodromos each consented to the PCAOB’s respective order against them. The PwC Greece order censures the firm, imposes a $3 million civil money penalty on the firm, and requires the firm to complete remedial undertakings. Those remedial undertakings require the following:

  • The firm’s associated persons involved in PCAOB audits will complete additional hours of professional training related to certain PCAOB standards.
  • For the next two years, the firm will obtain pre-issuance reviews by a third party for each issuer audit in which the firm prepares or issues an audit report or plays a substantial role in the preparation or issuance of an audit.

The Komodromos order censures him, imposes an $80,000 civil money penalty on him, and bars him from being an associated person of a registered public accounting firm for two years.

Further reading: Auditors’ Duty to Detect Related Party Transactions, to be Professionally Skeptical, and to Detect Fraud: A Case Study of Aegean Marine Petroleum Network, Inc. from Journal of Economics, Finance and Management Studies, Volume 4, Issue 06 June 2021 [PDF]

One thought on “PwC Greece and Partner Get Punished For Running Out of F*cks to Give About This Awful Audit

  1. A stopped clock is right twice a day. Here the PCAOB gets one right. PWC-Greece did a miserable job on this one.
    The PCAOB also announced six enforcement actions over insignificant audit defects. None of which was worth bothering with in my opinion.
    That’s one for seven, or 14%. Not very good.

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