In a matter that received little notice over the holiday season, a federal judge issued a ruling with more than significant implications for the auditing profession. Accounting Today said the decision: “exposes the Big Four firm to heavy potential damages, a federal judge found that PricewaterhouseCoopers [PwC] was negligent in its audits of Colonial Bank, which failed in 2009 in the midst of the financial crisis.” The lawsuit was brought by the FDIC against PwC for its failure to detect a multibillion-dollar fraud against Colonial Bank and its parent Colonial BancGroup by Taylor, Bean & Whitaker Mortgage Corp., another financial firm that collapsed in 2009.
The judge agreed with PwC’s primary defense that it was essentially duped by Taylor, Bean executives who falsified records claimed loans were secured against existing assets. The court, however, found PwC negligent in failing to do so. This made Colonial’s financial statements inaccurate. When the FDIC and its receiver took over, it sued PwC for its negligence in not detecting the fraud. PwC claimed a partial victory saying in a press release that the court reject four of the five claims brought by the FDIC, and added “The court’s ruling recognizes that in addition to those CBG employees who perpetrated the fraud, numerous other employees at Colonial Bancgroup actively and substantially interfered with PricewaterhouseCoopers’ audit.” PwC, however, could be looking at damages as high as $2.1bn.
