SEC Charges PwC for Improper Professional Conduct, Violating Auditor Independence

The Securities and Exchange Commission (SEC) has charged Big 4 firm PwC with improper professional conduct in 19 engagements and for conducting non-audit services for 15 audit clients, which is prohibited. PwC will pay over $7.9 million to settle the charges.

The SEC also charged PwC partner Brandon Sprankle with causing the firm’s independence violations. PwC and Sprankle consented to the SEC’s order without admitting or denying the findings.

Sprankle agreed to pay a $25,000 penalty and to be suspended from appearing or practicing before the SEC, with a right to reapply for reinstatement after four years. PwC agreed to be censured and to pay disgorgement of $3.8 million, plus prejudgment interest of over $600,000 and a civil penalty of $3.5 million.

PwC also agreed to perform a detailed review of its quality controls for complying with auditor independence rules and for evaluating its non-audit services.

The SEC found that the non-audit services included engaging in management functions and designing and implementing software relating to an audit client’s financial reporting. Also, the firm failed to notify the PCAOB, which requires the firm to inform the audit committee of the scope of work, discuss the potential effects on independence, and document the substance of the independence discussion.

According to the order, PwC’s actions deprived numerous audit committees of information necessary to assess the firm’s independence.

“Auditors play a fundamental role in protecting the reliability and integrity of financial reporting and must ensure that non-audit services do not come at the cost of their independence on audits of public companies,” says Anita B. Bandy, associate director of the SEC’s enforcement division. “PwC repeatedly provided non-audit services without having effective quality controls in place for monitoring whether the services impaired its independence on audit engagements and were properly disclosed to audit committees.”