Report finds audit violations at PriceWaterhouseCoopers
By Peter Ramjug
WASHINGTON, Jan 6 (Reuters) - Nearly half of the partners at PricewaterhouseCoopers LLP, the huge accounting and consulting firm, admitted violating rules that prohibit auditors from owning stocks in companies whose books they examine, according to an independent report released Thursday.
Written by Jess Fardella, a New York lawyer appointed by the Securities and Exchange Commission in March to review auditor independence violations at the firm, the 127-page report found ``serious structural and cultural problems,' the SEC said.
Pricewaterhouse Chairman Nicholas Moore and Chief Executive Officer James Schiro said in a letter to employees: ``These infractions of the independence rules, however unacceptable, did not in any way impair the professional objectivity and integrity of any of our audits.'
The firm said it has put in place new measures to prevent future violations.
The report, which was expected, was part of a settlement that Pricewaterhouse agreed to when it was accused early last year by the SEC of violating auditor independence rules and improper professional conduct.
The SEC, which has been jawboning the accounting industry about the importance of clean, sound audits, said its investigation into the Pricewaterhouse matter continues.
The agency has asked the Public Oversight Board, an independent body associated with the American Institute of Certified Public Accountants, to conduct similar reviews at other firms.
Fardella, of New York City-based Lankler Siffert & Wohl LLP, was tapped to supervise Pricewaterhouse's internal review, and his report said that 1,301 partners out of a total of 2,698 admitted to at least five violations each, while 153 partners confessed to more than 10 each.
However, in a random follow-up, it was discovered that a large majority of the partners had at least one unreported violation.
Violators included six out of 11 partners at the senior management level who oversaw the firm's independence program.
In all, there were 8,064 reported infractions by various employees over a two-year period, almost half of which involved direct investments by Pricewaterhouse personnel in securities, mutual funds, bank accounts or insurance products.
Direct investments are prohibited regardless of how the ownership came about. For example, ownership of securities through an investment club or payment for services through stock is illegal, said the independent consultant's findings.
There were weaknesses in the systems used by Pricewaterhouse to weed out auditor independence violations. For example, the firm relied on employees to sort through their own investments for any violations, and efforts to teach workers about the rules were insufficient, the report said.
``The review found excusable mistakes but also attributed the violations to laxity and insensitivity to the importance of independence compliance,' said the SEC.
Moore and Schiro, the Pricewaterhouse executives, said: ``All identified infractions have been or are being corrected, and serious violators are being disciplined.'
``The rules infractions committed by our people ... underline just how complex the independence rules are, but in no way diminishes the importance of compliance,' they added.
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