On September 23, 2019, PwC agreed to pay approximately $8 million to settle
SEC charges related to auditor independence violations and improper professional
conduct. In particular, the SEC’s order states that PwC violated the SEC’s auditor
independence rules through its involvement with the design and implementation
of software relating to an audit client’s financial reporting. PwC also allegedly failed
to obtain proper audit committee approval prior to performing non-audit services
for fifteen SEC-registered audit clients from 2013 through 2016. According to the
SEC’s order, PwC’s independence violations were caused by Brandon Sprankle, a
partner at the firm who also agreed to settle SEC charges in exchange for a $25,000
penalty and a four-year suspension from appearing and practicing before the SEC as
an accountant.
- Independence Violations – The SEC’s order states that Sprankle violated the
Commission’s auditor independence rules1 by negotiating and supervising two
non-audit engagements involving the design and implementation of the client’s
software related to financial reporting while PwC was conducting an audit of
the client. Sprankle was a member of the audit engagement team for the client
and, according to the SEC’s order, was aware that PwC’s independence policies
prohibited the firm from providing such non-audit services but nevertheless
informed the client that PwC was “absolutely permitted” to implement the
software.
- Individual Misconduct – In addition, Sprankle allegedly mischaracterized
the nature of these non-audit services when drafting the related engagement
letters, and in one instance described the services as an extension of the client’s
existing audit engagement to avoid concerns that had been raised by PwC’s Risk
Assurance Independence group. As a result of Sprankle’s mischaracterization,
the engagement was not subject to the firm’s normal review to determine
whether it included prohibited non-audit services. The SEC also alleged that
Sprankle regularly disclosed confidential client information to third parties
when pursuing non-audit work with the client.
- Failure to Obtain Proper Audit Committee Pre-Approval – The SEC’s order
also states that PwC violated PCAOB Rule 3525, which requires auditors to accurately and fully describe proposed services to audit committees so that the
committees can make informed decisions about independence. The order states
that PwC failed to obtain proper audit committee pre-approval per PCAOB rules
on nineteen engagements involving fifteen SEC-registrant audit clients. For
example, PwC allegedly mischaracterized non-audit services as audit work on
numerous engagements. The order further states that PwC’s violations were, in
part, the result of breakdowns in its independence-related quality controls.
The SEC’s settlement order with PwC can be found here.
The SEC’s settlement order with the PwC partner can be found here.
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