After Tyco's 'Aggressive Accounting,' PwC Vows Selectivity
The Tyco report said  PwC's client engaged in a "pattern of aggressive accounting" that was "intended to increase reported earnings." The report found no evidence of systemic fraud. It explained that the questionable accounting practices were not material to the financial statements on which PwC provided an unqualified opinion.
The approval of technically permissible — but perhaps misleading — "aggressive accounting" is the latest example of long-standing criticisms of auditors commonly called the "expectation gap." PwC Vice Chairman John J. O'Connor, said the move to greater selectivity is part of PwC's plans to close this gap.
"We are looking at the type of qualitative reporting that we can do," explained Mr. O'Connor, so investors will be informed of just how aggressive or conservative the assumptions behind a company's financial disclosures were. For now, he said, "we are clearly starting with the audit committees and management." This is not a new strategy. It was established years ago and strongly advocated by Price Waterhouse.
Price Waterhouse, one of the two firms that merged to form PwC, was known for years as the "blue chip" auditor. It earned its unique reputation by accepting only the best clients. But traditional values like selectivity seem to have given way in recent years to profit pressures, as accounting firms vied to be the biggest as well as the best.
In a backlash of sorts, PwC is now taking out advertisements in the New York Times and other papers, promising to take a tough stance with clients and resign if it cannot resolve concerns about a particular audit. ["Pricewaterhouse Taking a Stand, and a Big Risk," New York Times, December 31, 2002.]