On Thursday the Securities and Exchange Commission announced a settlement with Big Four firm PricewaterhouseCoopers regarding the firm's 1997 audit of SmarTalk Teleservices Inc. PwC is accused of engaging in improper professional conduct in its audit of the now bankrupt SmarTalk.

The SEC claims PwC failed to accurately report a $25 million restructuring reserve for SmarTalk and did not properly audit amounts that were charged against the reserve. The SEC said the restructuring reserve did not conform to accounting standards because the costs associated with the reserve were not proper restructuring costs. As a result, SmarTalk's 1997 annual report contained "materially false and misleading financial statements," according to the SEC.

PwC agreed to pay $1 million and to establish new policies for preserving documents. The firm also agreed to have its computer software system reviewed by an independent consultant.

Philip Hirsch, former PwC audit partner who was in charge of the SmarTalk audit, was also accused of engaging in improper professional conduct and has been barred from auditing publicly traded companies for a year, after which time he may apply for reinstatement.

"This case is an example of the Division of Enforcement's intention to adopt a new enforcement model - one that holds an accounting firm responsible for the actions of its partners," said Antonia Chion, associate director of enforcement at the SEC.