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The PCAOB Just Hit PwC With a Massive Independence Violation

PwC logo on building


Fresh from the Public Company Accounting Oversight Board (PCAOB), just now they’ve announced a settled disciplinary order sanctioning PwC for violations of PCAOB quality control standards relating to the maintenance of auditor independence that will cost the firm $2.75 million in penalties. PDF of the order here.

Says the PCAOB:

The PCAOB found that PwC’s quality control policies and procedures were deficient because they did not provide reasonable assurance that the firm’s personnel would timely consult with qualified individuals or refer to authoritative literature or other sources when dealing with certain complex, unusual, or unfamiliar independence issues.

OK so this probably isn’t so bad…

These deficiencies came to light in 2018, when numerous PwC leaders and partners failed to consult with PwC’s Independence Office or conduct other appropriate independence analysis as PwC explored the possibility of terminating its audit relationship with an issuer client to allow for a joint business relationship (JBR) with the client. PwC did not raise the JBR‑related discussions to its Independence Office – or perform an appropriate analysis of PwC’s independence in light of those discussions – until PCAOB investigators raised questions about PwC’s independence from the issuer.

Do you need a TLDR for this?

The PCAOB further found that, in 2018, members of PwC’s Tax group prepared and shared with members of PwC’s Assurance group a “business case” document showing that PwC could generate substantially more revenue from a JBR with the issuer than it was earning as the issuer’s auditor. In response to that business case document and at the instruction of one of PwC’s national leaders for Assurance, two PwC partners – including the engagement partner for the issuer’s then‐ongoing 2018 integrated audit – met with the issuer’s CEO and the issuer’s President in November 2018 and discussed, among other things, business opportunities that PwC and the issuer could pursue in a JBR. Both during and after the meeting, the issuer’s CEO expressed enthusiasm for a JBR with PwC, which the CEO understood might be worth tens of millions of dollars to the issuer.

Shortly after the November meeting, PwC and the issuer began exploring the possibility of transitioning the audit to another auditor. At the same time, however, PwC planned to continue performing the audit of the issuer’s December 31, 2018, financial statements and to also perform the next quarterly review. PwC’s then‐existing independence policies and procedures did not require an Independence Office consultation in these circumstances.

The issue was brought to PwC’s Independence Office only the PCAOB’s Division of Enforcement and Investigations sent PwC a document and information request concerning PwC’s independence from the issuer. At that point, the Independence Office then considered the above circumstances, alongside PwC’s other non‐audit interactions with and involving the issuer and determined that there was a risk that a reasonable investor could conclude that PwC was not independent of the issuer in 2018. Before completing the 2018 audit, PwC was terminated as the issuer’s auditor.

Without or admitting or denying the PCAOB’s findings, PwC consented to the order. They’ve earned themselves a $2.75 million civil money penalty and will have to do the usual performative “remedial undertakings” which are:

  • Review and revise or supplement, as necessary, its independence‐related quality control policies and procedures;
  • Make certain communications to the firm’s professionals regarding certain independence rules and standards, and related firm quality control policies and procedures; and
  • Ensure that all current firm professionals, and all professionals hired in the next five years, complete four additional hours of professional training related to certain independence rules and standards, and related firm quality control policies and procedures.

We’ll dig deeper into the order later.

PCAOB Fines PwC $2.75 Million for Quality Control Violations Relating to Independence [PCAOB]

9 thoughts on “The PCAOB Just Hit PwC With a Massive Independence Violation

      1. OK “massive” may have been an exaggeration. IDK, I genuinely thought it was significant given the issues at PwC Australia — it’s a bad look when they’re getting hammered with reputational damage that’s spreading globally. Of course the monetary damages never mean shit, like B4V said they wipe their ass with a couple million bucks.

        1. Yes but problem is companies that use them don’t seem to pay attention to their many many scandals and crimes. And even when it is brought to their attention, along with poor work, often politics are so involved at the top no changes are made. It is gross.

  1. Massive? As Henny Youngman used to say, “How’s your wife? Compared to who”?
    PWC’s last reported worldwide revenues were $53 billion. Assuming $22 billion was from the US, divide$2.75 million by $22 billion and get .000125 or 1 / 8,000.
    This is massive?
    Agreeing with Big4 Veteran, this is nothing for PWC.
    It’s the PCAOB and PWC agreeing to give the PCAOB a headline so the PCAOB never investigates any serious wrongdoing.

  2. If PwC was not independent, why wasn’t an audit of the client required? The PCAOB finds numerous errors, etc. with accountants’ audits but there’s never a reaudit of the Company’s financial statements. What’s the point?

    1. Agreed to your point in general, just don’t think it fits in this case.

      If PwC was terminated before completing the 2018 audit like the article says, then someone else had to have been hired to do it, in order for the issuer to file its 2018 10-K.

      That would have been a really fast turnaround for the PCAOB to identify the issue and contact PwC, btw.

    2. Agree, it is odd for this case. Normally there is a partial “re-audit” when deficiencies are found. For example, when the PCAOB fails an audit because the auditor did not obtain sufficient evidence to support the operating effectiveness of a control, the audit firm must remediate that deficiency by gathering the requisite evidence. If they conclude that the control failed, the firm would pull/reissue their report. That rarely ever happens because most failed audits/PCAOB findings are trivial foot faults that can be remediated in a few hours.

      For an independence issue I can only assume it’s because the 2018 financials are no longer being relied upon.

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