Big Four audit firm PwC was assessed a $2.75 million penalty by the Public Company Accounting Oversight Board (PCAOB) for failures in its auditor independence processes related to a 2018 engagement.
The PCAOB announced the penalty Thursday, along with a separate $600,000 fine against PwC Australia for not timely disclosing a matter with the country’s Tax Practitioners Board.
In the PwC independence case, the PCAOB said the firm failed to implement a system of quality control to provide reasonable assurance that its personnel maintain independence.
The details: In 2018, senior leaders at PwC explored the possibility of terminating the firm’s relationship with a client that supplied software the firm used to allow for a potential joint business relationship with that client, as detailed in the PCAOB’s order.
Discussions between the two businesses progressed, during which time PwC planned to continue auditing the client’s financial statements and internal control over financial reporting for the year ended Dec. 31, 2018, and to review the client’s first quarter of 2019 interim financial statements.
Once the potential for independence issues was identified in January 2019, the client terminated PwC as the auditor on its 2018 financials before it issued an audit report.
Compliance considerations: The crux of the PCAOB’s criticism was focused on PwC’s independence assessment process. The firm leaders and partners involved in the 2018 discussions with the client did not properly conduct an independence analysis, nor did PwC policy require them to do so.
Only after the PCAOB began an inquiry into the matter, it said, did the PwC leaders consult with the firm’s independence office, which reached the conclusion that led to the client terminating the relationship over independence concerns.
“A critical component of a well-functioning system of quality control are policies and procedures that provide reasonable assurance that personnel will refer to authoritative literature or other sources and consult, on a timely basis, when appropriate,” said Robert Rice, director of the PCAOB’s Division of Enforcement and Investigations, in its press release. “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.”
Firm response: “While there is no allegation that our independence was impaired, PwC recognizes that maintaining our independence is key to our important role in the capital markets,” said the firm in an emailed statement. “We cooperated with the PCAOB’s investigation concerning events from 2018 and are pleased to have resolved this matter. We remain committed to a process of continuous improvement, as reflected in our profession-leading audit quality results.”
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