News & Insights

Auditor Liability Bulletin

March 29, 2024

PCAOB Sanctions U.S. Audit Firm for Violations of Quality Control Standards Concerning Policies and Procedures Related to Independence

On March 28, 2024, U.S.-based PricewaterhouseCoopers (“PwC”) settled with the PCAOB for violations of PCAOB quality control standards related to the maintenance of auditor independence.

According to the PCAOB, PwC’s internal policies and procedures failed to provide reasonable assurance that its personnel would consult with knowledgeable individuals concerning matters that could potentially impair auditor independence in circumstances not specifically addressed in, or prohibited by, a specific independence rule or standard. Specifically, the PCAOB faulted PwC for failing to adequately communicate to personnel that it should consult with PwC’s Independence Office or other knowledgeable individuals prior to engaging in discussions with audit clients about potential joint business relationships (“JBRs”). The settled order noted that, in 2018, PwC was exploring the possibility of terminating its audit relationship with an issuer to allow for a JBR with that same issuer. More specifically, one of PwC’s national leaders for Assurance and two PwC partners – including the engagement partner for the then-ongoing audit of the issuer’s December 31, 2018 financial statements (the “2018 Audit”) – met with the issuer to discuss the potential for terminating PwC’s audit relationship and entering into a JBR. Notwithstanding the meeting, PwC planned to continue to perform the 2018 Audit as well as the review of the issuer’s first quarter 2019 interim financial statements. The PCAOB asserted that the meeting to discuss JBR opportunities occurred without PwC professionals initiating any consultation with its Independence Office, either before or after that meeting. Rather, no one at the firm initiated a consultation concerning the potential JBR until after the PCAOB’s Division of Enforcement and Investigations began an inquiry into PwC’s independence from the issuer. 

The PCAOB imposed a $2,750,000 civil money penalty and censured the firm, noting that it took into consideration the firm’s cooperation and voluntary undertaking of remedial steps during the pendency of the PCAOB’s investigation. The order, entered on a neither admit nor deny basis, also requires the firm to undertake and certify completed improvements to its independence-related quality control policies and procedures, along with communicating those policies and procedures to all of its professionals, reiterating independence requirements, including the general independence standard, to all of its professionals, and ensuring that each of its professionals – including any professional hired over the next five years – receives 4 hours of auditor independence training.

The PCAOB press release is available here, and the settled order is available here.