4-5 minutes - SEC
The SEC’s order finds that PwC violated the SEC’s auditor independence rules by performing prohibited non-audit services during an audit engagement, including exercising decision-making authority in the design and implementation of software relating to an audit client’s financial reporting, and engaging in management functions. In connection with performing non-audit services for 15 SEC-registered audit clients, the order states that 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. According to the order, PwC’s actions deprived numerous issuers’ audit committees of information necessary to assess PwC’s independence. As further detailed in the order, 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.
“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,” said Anita B. Bandy, Associate Director of the SEC’s Division of Enforcement. “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.”
The SEC’s orders find that PwC and Sprankle violated the auditor independence provisions of the federal securities laws and caused one audit client to violate its obligation to have its financial statements audited by independent public accountants. The order also finds that PwC and Sprankle engaged in improper professional conduct within the meaning of Rule 102(e) of the SEC’s Rules of Practice.
PwC and Sprankle 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 $3.5 million, 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 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.
The SEC’s investigation was conducted by Matthew Finnegan and Paul Gunson and was supervised by Ms. Bandy and Douglas McAllister. The SEC appreciates the assistance of the PCAOB.