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

The Public Company Accounting Oversight Board (PCAOB) has issued a disciplinary order against PricewaterhouseCoopers LLP (PwC), imposing a civil money penalty of $2.75 million for violations of PCAOB quality control standards concerning auditor independence. This decision follows an investigation into deficiencies in PwC's quality control policies and procedures, which failed to ensure timely consultation on complex independence issues.

The PCAOB's findings stem from events in 2018 when several PwC leaders and partners neglected to consult with the firm’s Independence Office regarding a potential joint business relationship (JBR) with an issuer client. PwC’s failure to conduct appropriate independence analysis came to light only after PCAOB investigators raised concerns about the firm's independence from the issuer.

According to the PCAOB, members of PwC’s Tax group prepared a "business case" document demonstrating the potential for substantial revenue from a JBR with the issuer. Acting on instructions from a national leader for Assurance, two PwC partners, including the engagement partner for the issuer’s 2018 integrated audit, discussed business opportunities with the issuer’s CEO and President. These discussions, undisclosed to PwC’s Independence Office, raised questions about the firm’s independence.

Following a document and information request from the PCAOB, PwC initiated a consultation with its Independence Office. Subsequently, it was determined that there was a risk that a reasonable investor could conclude PwC was not independent of the issuer in 2018. Consequently, PwC was terminated as the issuer’s auditor before completing the 2018 audit.

"Auditor independence is essential to maintaining trust in our capital market system," remarked PCAOB Chair Erica Y. Williams. "Firms must have effective guardrails in place to enforce independence and uphold the integrity of their audits."

Robert E. Rice, Director of the PCAOB’s Division of Enforcement and Investigations, emphasized the importance of well-functioning quality control systems. He stated, "If a firm does not appropriately design and maintain such policies and procedures, or does not adequately communicate them, we will not hesitate to hold the firm accountable for that failure."

In response to the PCAOB's order, PwC has consented without admitting or denying the findings. The order censures the firm and requires it to undertake remedial measures, including a review and revision of its independence-related quality control policies and procedures. Additionally, PwC is mandated to provide further training on auditor independence to both audit and non-audit professionals within the firm.

The PCAOB’s actions underscore its commitment to upholding rigorous standards within the accounting profession and ensuring the integrity of financial reporting processes.

The GRC Report is your premier destination for the latest in governance, risk, and compliance news. As your reliable source for comprehensive coverage, we ensure you stay informed and ready to navigate the dynamic landscape of GRC. Beyond being a news source, the GRC Report represents a thriving community of professionals who, like you, are dedicated to GRC excellence. Explore our insightful articles and breaking news, and actively participate in the conversation to enhance your GRC journey.