On August 1, 2019, the Public Company Accounting Oversight Board (PCAOB) published a disciplinary order censuring PricewaterhouseCoopers (PwC), S.C. (a Mexican firm in the PwC network) and imposing sanctions against PwC-Mexico for violating independence, audit committee communication and quality control standards.
In summary, PwC-Mexico:
- Violated PCAOB Rule 3520, Independence, by claiming it complied with independence rules during the audit and professional engagement periods with respect to its bank audit client (bank) covering a two-year period. Independence violations related to certain covered persons' financial relationships with the bank, specifically, margin loans on brokerage accounts, uninsured brokerage accounts, and mortgage loans on second residences. Violations involved six (6) partners in the office where the lead audit partner for the bank conducted the audit ("covered persons"). Lending relationships were discovered and unwound within a few months of engagement acceptance; however the uninsured brokerage accounts went undetected for two (2) years.
- Failing to provide a Rule 3526 ("Communication with Audit Committees Concerning Independence") letter to the bank prior to accepting its appointment as auditor in June 2016.
- Failing to disclose covered persons' lending and brokerage interests to the bank's audit committee, as required (not disclosed until June 2018).
- Failing to have a quality control system, including monitoring controls, that was capable of identifying failure to comply with independence and audit committee communication standards (i.e., did not meet the "reasonable assurance" standard incorporated in the PCAOB's quality control standards).
- Representing in its June 2017 3526 letter that the firm was not aware of any relationships that may bear on independence, when in fact, certain covered persons' financial relationships that violated the independence rules were identified in the prior year.
As a result of these failures impacting the 2016 and 2017 bank audits, the PCAOB and PwC-Mexico entered into a settlement agreement in which the PCAOB:
- censured PwC-Mexico;
- imposed a civil money penalty of $100K;
- required PwC-Mexico to implement / revise policies and procedures, including monitoring procedures, to provide reasonable assurance of compliance with Rule 3526;
- required PwC-Mexico to implement / revise policies and procedures to ensure training on Rule 3526 and auditor independence requirements; and
- required PwC-Mexico to certify the actions it takes to satisfy requirements to implement or revise the above policies and procedures and provide evidence of compliance.
