PwC Australia fined in US for failing to disclose TPB investigation
PwC Australia has been ordered to pay $600,000 by a US regulator, marking the first disciplinary action on foreign soil to come from the tax leaks scandal.
In two different enforcement actions, the US Public Company Accounting Oversight Board (PCAOB) fined PwC Australia and its US arm a combined $3.35 million.
PwC Australia was fined $600,000 for failing to “timely report” the initiation and conclusion of the TPB investigation into the firm’s conflicts of interest arising from the tax leaks scandal.
The firm’s US arm was ordered to pay $2.75 million for an unrelated failure to maintain auditor independence, as required by the regulator’s quality control standards.
Both orders were announced on the same day, though only the Australian breach relates to the tax leaks scandal.
PCAOB rules require that registered public accounting firms notify the board of the initiation, and conclusion, of any disciplinary proceedings against it within 30 days.
Despite several senior members of the firm, including the then-CEO, knowing of the investigation in March 2021, the PCAOB was not notified until mid-2023.
The conclusion of the TPB investigation was also not reported until the same date in mid-2023, more than six months after the event.
Those with knowledge of the investigation failed to inform the key PwC personnel responsible for notifying the PCAOB, the order said.
Once those individuals became aware of the investigation through the press, however, it still took over a month to lodge a formal PCAOB notification.
“Failure to disclose required information is not acceptable, and the PCAOB will hold firms accountable,” said PCAOB chair Erica Williams.
PwC Australia’s quality control monitoring processes were to blame, said the PCAOB. Those processes failed to identify the “siloed nature” of the firm's primary practice areas and the implications for reporting.
The firm has “consented” to the order without confirming or denying the PCAOB’s findings. It must pay the penalty amount within 10 days of the issuance of the order on 28 March.
Alongside the fine, the PCAOB imposed a censure on the firm and ordered it to undertake several remedial actions, including updates to its monitoring procedures relating to reporting.
Ahead of the PCAOB’s enforcement actions, PwC submitted an offer of settlement to which the board agreed.
The internal quality control policies of the US firm were also the subject of PCAOB scrutiny, exposed by an apparent failure to maintain auditor independence.
Given the size of the firm and the associated risk of conflicts emerging, it maintains an Independence Office which assists PwC professionals in avoiding situations of overlapping interests.
“PwC is one of the largest accounting firms in the world, and the nature of its practice, which includes substantial tax and advisory services, gives rise to independence risks that are less common for firms with less complexity,” wrote the PCAOB.
In 2018, the US firm considered terminating its relationship with a client who supplied software to the firm on the basis that a joint business relationship – rather than the existing client-customer relationship – could be more profitable.
Personnel involved in the decision-making process failed to consult with the Independence Office or to carry out other kinds of independence analyses despite the risk of independence issues arising.
This, the PCAOB said, demonstrated the inadequacy of the firm’s internal quality control policies. Sanctions were warranted partly on the basis that investors and the public interest more broadly deserve “informative, accurate, and independent audit reports.”
As with the Australian firm, the Board also issued a censure and ordered the firm to undertake several remedial actions – including professional training and communication of quality control policy among staff.
“If a firm does not appropriately design and maintain such policies and procedures, or does not adequately communicate them, we will not hesitate to hold the firm accountable,” said Robert Rice, director of the PCAOB’s enforcement and investigations division.
