SEC hands down $5m fine to PwC

PwC’s independence violations relate to 16 separate audits of 16 public companies between 1996 and 2001. The violations arise from the use of prohibited contingent fee arrangements, whereby the firm’s investment banking arms were advising audit clients on transactions but were accepting payment only if the deals succeeded and signing off improper accounting methods.

The fine is the largest levied by the SEC in an auditor independence case.

In the UK the SEC forced the resignation of PwC partner Geoff Westmore over conflicts of interest.

Two of the violations concerned Avon Products Inc and Pinnacle Holdings Inc in which conflicts arose because PwC was performing consulting services for its audit clients. In both cases, the firm signed off financial statements that improperly accounted for PwC’s own consulting fees.

Stephen M Cutler, SEC director of the division of enforcement, said: ‘This case demonstrates the heightened risk of an audit failure when an accounting firm assists in and approves the accounting treatment of its own consulting fees. Faced with that situation here, PwC lacked the objectivity and impartiality required of an independent auditor.’

The settlement comes as auditor independence is under intense scrutiny following the collapse of Enron, the disintegration of Andersen and accounting scandals at numerous US public companies, in particular WorldCom.

The issue is also being scrutinised by the UK government and regulators. Next week ministers are set to publish an interim report considering auditor rotation and the banning of firms providing non-audit services to audit clients.

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