Sealed Air dumps EY & hires PwC, as SEC investigates

Sealed Air is under investigation by the Securities and Exchange Commission and a U.S. Attorney’s Office in North Carolina over how it appointed EY in November 2014. The large accelerated filer’s audit committee said it terminated EY on Aug. 7, a few days after issuing its second-quarter 10-Q. That’s when the company disclosed it was under subpoena related to the termination in June of CFO William Stiehl as well as the process by which the company selected EY as its auditor beginning with the 2015 fiscal year.

In its recent Form 8-K filing, the audit committee says it terminated EY due in part to its “dissatisfaction with information it learned about the process by which EY was selected as auditor.” The uncertain outcome of the SEC investigation and the desire for an orderly transition also weighed on the audit committee, which said it wanted to “minimize the risk of disruption that could arise in the event of an unplanned change in independent auditors at an undetermined time in the future.”

EY says it respects the company’s decision to select other auditors but stands by its work and its independence. “We remain confident that EY performed its work with rigor, objectivity, impartiality and skepticism, in full compliance with all applicable professional standards,” the firm said.

In appointing PwC, Sealed Air also disclosed some lengthy discussion and analysis of the firm’s independence, asserting ultimately that the audit committee believes the firm can provide independent assurance on its 2019 financial statements. With 2018 net sales of $4.7 billion and 100 manufacturing facilities in nearly 50 countries, the company said it identified audit firms it believed were qualified to serve as its auditor—no doubt a short list—and identified possible independence issues with all of them.

Sealed Air says it and PwC identified certain non-audit services that PwC or one of its global network affiliates had provided for the company that are not permitted under the SEC’s rules governing auditor independence. “The committee and PwC discussed the services, which are no longer being performed, and concluded that the provision of the services will not affect PwC’s objectivity or its impartiality and will not impair its ability to serve as the company’s independent registered public accounting firm,” the company disclosed in its filing.

The disclosure lists services provided to Sealed Air by PwC or its affiliates, including some reverse sales and use tax audits in 2016, 2017, and 2018, initially paid on a contingent fee basis until converted to a fixed payment based on hourly rates. PwC firms also provided payroll and benefits administration for a Singapore business in 2018 and 2019 and sub-consolidation workpapers for units in Hong Kong and Shanghai in 2018 and 2019.

Fees across the firms in 2019 cost Sealed Air $223,000. “PwC and the other firms in the global network of firms ceased providing these services to the company and its subsidiaries prior to PwC being engaged as the company’s auditor,” Sealed Air says.

As a comparison, the company paid EY $7.15 million for audit services in 2018, along with $405,000 in audit-related fees, such as general accounting matters, employee benefit plan audits, and any merger or acquisition work, and $2.16 million in tax fees, for a total bill of some $9.7 million.

Editor’s note: This article has been updated to add EY’s statement.