Last week, PricewaterhouseCoopers was assured that individual auditors would not face criminal charges from New York prosecutors investigating the undisclosed "secret bonuses" at Tyco International. But this week, PwC found itself back in the hot seat, thanks to statements about the firm made in court papers filed by Tyco's former general counsel.

The central issue in both a legal court and the court of public opinion seems to be the extent to which PwC's auditors knew that Tyco had made undisclosed loans to executives. If PwC had knowledge of the loans, then it also had reason to know that Tyco's annual proxy filings were incorrect, but failed to do anything about it.

The loans to the former general counsel amounted to around $14 million. He was indicted for hiding these loans on internal director and officer questionnaires. But the court papers argue the former general counsel was advised the loans didn't need to be reported on the questionnaires.

The papers say the loans were, however, fully verified in response to confirmation requests from PwC: "Mr. Belnick regularly completed disclosure forms for PwC confirming the balance of his outstanding New York (and subsequently Utah) relocation loans (and on two occasions advised the auditors that he actually owed more on the relocation loans than they calculated)."

Although auditors are not responsible for approving proxy filings, legal experts say prosecutors could argue under New York laws that PwC may have been committing securities fraud by helping Tyco make incomplete disclosures. A PwC spokesperson said the firm does not ordinarily comment on client matters, except to say, in this case, that the firm is cooperating with investigators.

-Rosemary Schlank