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

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

The PCAOB further found that, in 2018, members of PwC's Tax group prepared and shared with members of PwC's Assurance group a "business case" document showing that PwC could generate substantially more revenue from a JBR with the issuer than it was earning as the issuer's auditor. In response to that business case document and at the instruction of one of PwC's national leaders for Assurance, two PwC partners - including the engagement partner for the issuer's then‐ongoing 2018 integrated audit - met with the issuer's CEO and the issuer's President in November 2018 and discussed, among other things, business opportunities that PwC and the issuer could pursue in a JBR. Both during and after the meeting, the issuer's CEO expressed enthusiasm for a JBR with PwC, which the CEO understood might be worth tens of millions of dollars to the issuer.

Shortly after the November meeting, PwC and the issuer began exploring the possibility of transitioning the audit to another auditor. At the same time, however, PwC planned to continue performing the audit of the issuer's December 31, 2018, financial statements and to also perform the next quarterly review. PwC's then‐existing independence policies and procedures did not require an Independence Office consultation in these circumstances.

PwC's Independence Office was informed of the November meeting and related discussions only after the PCAOB's Division of Enforcement and Investigations sent PwC a document and information request concerning PwC's independence from the issuer. That PCAOB request caused PwC to initiate a consultation with its Independence Office. The Independence Office then considered the above circumstances, alongside PwC's other non‐audit interactions with and involving the issuer and determined that there was a risk that a reasonable investor could conclude that PwC was not independent of the issuer in 2018. PwC was thereafter terminated as the issuer's auditor, prior to completing the 2018 audit.

"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 E. Rice, Director of the PCAOB's Division of Enforcement and Investigations. "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."

Without admitting or denying the Board's findings, PwC consented to the PCAOB's order against the firm. The order censures the firm, imposes a $2.75 million civil money penalty on the firm, and requires the firm to complete remedial undertakings. Those remedial undertakings require that the firm:

• Review and revise or supplement, as necessary, its independence‐related quality control policies and procedures;

• Make certain communications to the firm's professionals regarding certain independence rules and standards, and related firm quality control policies and procedures; and

• Ensure that all current firm professionals, and all professionals hired in the next five years, complete four additional hours of professional training related to certain independence rules and standards, and related firm quality control policies and procedures.

PCAOB staff members Joshua M. Cutler, Michael Rosenberg, Tony Mealey, Khristoph Becker, and K Lynn Dunston conducted the investigation, which was supervised by William Ryan and John Abell. The PCAOB thanks the Securities and Exchange Commission for its assistance in this matter.

The PCAOB oversees auditors' compliance with the Sarbanes-Oxley Act, provisions of the securities laws relating to auditing, professional standards, and PCAOB and SEC rules. Further information about the PCAOB Division of Enforcement and Investigations is  available on the PCAOB website.

Firms or individuals wishing to report suspected misconduct by auditors, or to self-report possible misconduct, may visit the PCAOB  Tips and Referrals page.

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About the PCAOB

The PCAOB is a nonprofit corporation established by Congress to oversee the audits of public companies in order to protect investors and further the public interest in the preparation of informative, accurate, and independent audit reports. The PCAOB also oversees the audits of brokers and dealers registered with the Securities and Exchange Commission, including compliance reports filed pursuant to federal securities laws.

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