PwC fined $1m over Merrill Lynch audit

The Public Company Accounting Oversight Board (PCAOB) has fined PwC $1m (£760,000) over its 2014 audit of Merrill Lynch.

The US-based watchdog levied this fine following PwC’s failure to observe rules relating to customer protection when auditing Merrill-Lynch.

The Security and Exchange Commission (SEC)’s customer protection rules require broker-dealers such as Merrill-Lynch to “hold certain customer securities in a segregated account free of liens”, which is aimed at protecting customer securities from claims by creditors.

A PCAOB investigation found that Merrill-Lynch violated these rules in 2014 by holding tens of billions of dollars of its customers’ securities in accounts with third-party institutions that were subject to liens by the third parties.

The watchdog asserted that PwC failed as auditor when it did not obtain sufficient evidence of Merrill-Lynch’s compliance with these rules before issuing its audit reports.

PwC consented to PCAOB’s orders.

James R. Doty, PCAOB Chairman commented: “An auditor’s attention to a broker’s compliance with the SEC’s Customer Protection Rule provides critical assurance that the business is protecting customer securities from liens by creditors of the broker.”

“PwC failed to fulfill its obligations during a period when Merrill Lynch exposed billions of dollars of customer assets to claims of its creditors.”

Claudius B. Modesti, director of PCAOB enforcement and investigations added: “Investors should not have to worry that their brokers’ auditors are failing to perform appropriate work in examining the safeguards around their funds.”

“Today’s order demonstrates the enforcement division’s commitment to using its authority to police and sanction those who place investors at risk.”

This is the latest in a series of blows for PwC, who have recently been sued by NHBC for £35m in tax dispute, dropped as Wetherspoon’s auditor and had their bank auditing rights revoked in Ukraine.

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