PwC defends audits faulted by PCAOB

PricewaterhouseCoopers LLC (PwC), in an occasionally strongly worded letter addressed to the Public Company Accounting Oversight Board (PCAOB), defended the quality of the six audits found to have deficiencies in the PCAOB's Report on 2006 Inspection of PricewaterhouseCoopers LLC, released October 18th. Audit firms are informed of any deficiencies before the reports are published so that they can provide additional documentation to support their reports and to prepare their response to significant deficiencies cited in the PCAOB report.

PwC's letter repeatedly defends their audit procedures in "the context of our risk assessment" and refers to an "overall top-down risk based audit" in three cases. In one case, the letter says, "We believe as a matter of professional judgment that the audit procedures originally performed were responsive to our risk assessment and also to the result of our testing of the issuer's internal controls over both its forecasting and impairment assessment processes."

PwC said that in another audit cited in the report, one of the PCAOB's findings was "factually incorrect." The report said that PwC had "identified deficiencies in all of the key controls that the issuer had identified" but in fact, "the majority of key controls were not considered deficient."

In one instance considered significant, the PCAOB said that PwC had failed to appropriately test whether the company's analysis of mortgage servicing rights complied with SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities. PwC responded, "We have concluded that, in each instance, our original procedures were sufficient to support our audit conclusions and the opinion rendered at the time." PwC did provide additional documentation to its working papers to support their audit report.

You can read the complete complete PCAOB report.

The PCAOB has now published inspection reports for each of the Big Four firms.