PwC fined $7.9m over audit independence failures

PwC is to pay $7.9m (£6.3m) to settle claims by the Securities and Exchange Commission (SEC) that the US firm and one of its partners violated auditor independence rules and engaged in improper professional conduct

The allegations concern 19 audit engagements with 15 unnamed firms, where PwC is alleged to have performed prohibited non-audit services (NAS).

These included exercising decision-making authority in the design and implementation of software relating to an audit client’s financial reporting, and engaging in management functions.

The SEC said PwC violated Public Company Accounting Oversight Board (PCAOB) Rule 3525, which requires an auditor to describe in writing to the audit committee the scope of work, discuss with the audit committee the potential effects of the work on independence, and document the substance of the independence discussion.

The regulator said the violations occurred due to breakdowns in PwC’s independence-related quality controls, which resulted in the firm’s failure to properly review and monitor whether non-audit services for audit clients were permissible and approved by clients’ audit committees.

PwC and partner Brandon Sprankle, who is based in California and has been with the firm since 2014, have consented to the SEC’s order without admitting or denying the findings, and agreed to cease and desist from future violations.

PwC agreed to pay disgorgement of $3,830,213, plus prejudgment interest of $613,842 and a civil money penalty of $3.5m, and to be censured.

Sprankle agreed to pay a civil money penalty of $25,000, and to be suspended from appearing or practicing before the Commission, with a right to reapply for reinstatement after four years.

PwC has also agreed to perform a detailed set of undertakings requiring the firm to review its current quality controls for complying with auditor independence requirements for non-audit services and for evaluating its provision of non-audit services.

Anita Bandy, associate director of the SEC’s division of enforcement, said: ‘Auditors play a fundamental role in protecting the reliability and integrity of financial reporting and must ensure that non-audit services do not come at the cost of their independence on audits of public companies.

‘PwC repeatedly provided non-audit services without having effective quality controls in place for monitoring whether the services impaired its independence on audit engagements and were properly disclosed to audit committees.’ 

In a statement, PwC said: ‘PwC takes independence and its important role in the capital markets seriously.

‘PwC is pleased to have resolved this matter and remains committed to continuous improvement. Through our ongoing efforts, we have and continue to add additional processes and controls to maintain independence.’

SEC order - PwC, SEC order - Brandon Sprankle

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