After Tyco's 'Aggressive Accounting,' PwC Vows Selectivity

In a series of advertisements timed to coincide with the release of a critical report on the accounting practices of its audit client Tyco International, PricewaterhouseCoopers (PwC) is vowing a return to an era of greater selectivity in client service.

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.]

You may like these other stories...

Here's a CPA who truly walks the walk. On March 15, Frank Ryan, CPA, departed San Diego, California, with plans to be in Ocean City, Maryland, by July 2 to teach a course at the Maryland Association of CPAs’ (MACPA...
When Theodore J. Flynn first joined the Massachusetts Society of CPAs (MSCPA) in 1970, it was a different world and a different profession.  The "Big Eight" were still headquartered in Boston. Vietnam War...
Accountant Rickey Charles Goodrich had it a little too good. Many bean counters would kill to serve as financial guru to the likes of Pearl Jam. Goodrich was hired in 2005, and the following year, he became the CFO of Curtis...

Upcoming CPE Webinars

Jul 31
In this session Excel expert David Ringstrom helps beginners get up to speed in Microsoft Excel. However, even experienced Excel users will learn some new tricks, particularly when David discusses under-utilized aspects of Excel.
Aug 5
This webcast will focus on accounting and disclosure policies for various types of consolidations and business combinations.
Aug 20
In this session we'll review best practices for how to generate interest in your firm’s services.
Aug 21
Meet budgets and client expectations using project management skills geared toward the unique challenges faced by CPAs. Kristen Rampe will share how knowing the keys to structuring and executing a successful project can make the difference between success and repeated failures.