The Securities and Exchange Commission (SEC) announced a settled enforcement action against PricewaterhouseCoopers (PwC) for another rash of alleged auditor-independence violations. The charges involve incidents that occurred between 1996 to 2001 and focus attention on a different set of rules than the violations for which PwC was censured in 1999.
The most recent charges involve contingent fees and improper accounting for PwC's consulting fees.
- Contingent fees. The SEC charges that PwC and its predecessor firm Coopers & Lybrand hired its own investment bankers to perform financial advisory services for audit clients for a fee that depended on the success of the client's transaction.
- Improper accounting. The SEC charges that PwC assisted clients in establishing improper reserves, capitalizing costs of consulting and other non-audit services that should have been expensed, and not recognizing impairment of an asset that included mostly fees charged by PwC for an aborted software project its consultants had attempted to develop for the client's internal use.
PwC settled these charges without admitting guilt for a $5 million fine and a promise to improve certain internal procedures. The improvements will involve reviews of new fee agreements for non-audit services before signing off on them, appointment of an independent reviewing partner to ensure auditing and accounting industry rules are followed, and annual employee training on auditor-independence issues.
The prior rash of violations involved ownership by PwC partners of securities of public audit clients. A 1999 report found almost half the PwC partners self-reported at least one independence violation, with an average of five violations per partner. Then, as now, the firm agreed to improve its internal procedures and provide additional training.