PwC Alerts Audit Clients to Darker Side to Reforms

According to a report in the Financial Times, PricewaterhouseCoopers (PwC) is warning audit clients that audit reforms may have a darker side. Some clients can expect higher fees and other adverse effects caused by the firm's reactionary steps to the Sarbanes-Oxley Act.

PwC's CEO Samuel DiPiazza has indicated:

  • PwC may drop some large audit clients because the work is no longer economically feasible.
  • Other companies may be dropped if they refuse to pay for certain services, such as risk assessment, that help the firm complete a proper audit.

Mr. DiPiazza told the Financial Times: "If we have an audit client unwilling to pay what we feel are fair audit fees or that restricts our scope of services to the point where we are concerned about the quality of that audit - either of those can cause us to walk away from the relationship. I think that is going to happen."

The FT explains the steps are a business reaction to the loss of lucrative non-audit work, such as tax planning, from audit clients. The foregone revenues from this type of work will make it harder for PwC and other audit firms to offer significant discounts to audit clients based on the range of services provided.

Mr. DiPiazza insists that PwC is committed to auditing, but says, "We have to be in it in a way that we can at least return enough to make our profession worthwhile." He believes the proposed rules on auditor independence with their limitations on non-audit services and other effects of the U.S. Sarbanes-Oxley Act could damage audit quality.

The adverse effects on audit quality are expected to be especially severe on audits of multinational companies because the local firms that audit subsidiaries of US-listed companies could choose to abandon the work rather subject themselves to the oversight of the new U.S. accountancy regulator. ("PwC warns large clients of higher audit fees," Financial Times, December 11, 2002)

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