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SEC hits Pricewaterhouse
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January 6, 2000: 5:11 p.m. ET
Independent review finds widespread violation of auditor-independence rules
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NEW YORK (CNNfn) - An independent review has found that PricewaterhouseCoopers LLP widely violated accounting rules that prohibit auditors from owning stocks in companies audited by the firm, the Securities and Exchange Commission said Thursday.
The SEC ordered the review last January as part of a settlement with the accounting firm relating to auditing-independence violations. At the time, the SEC also ordered Pricewaterhouse to spend $2.5 million on educating its auditors about the independent-auditing system and required the firm to submit to a review by outside consultant Jess Fardella, of Lankler Siffert & Wohl LLP.
The SEC had claimed that in several instances between 1996 and 1998 auditors and partners at the firm owned securities in their publicly held audit clients, a violation of generally accepted auditing standards.
The review’s findings released Thursday found that the violations were even more widespread than the SEC had first alleged. Almost half of the firm’s nearly 2,700 partners reported at least one violation of auditing-independence standards and many had multiple violations, the review found. Most of the violations involved owning mutual funds or stocks in audit clients.
An investigation of the firm’s practices is ongoing, said Chris Ullman, an SEC spokesman. The SEC has the authority to take action against specific accountants at the privately held firm, but Ullman declined to comment on whether the commission would pursue such action.
The SEC also ordered a committee of professional accountants to conduct independent reviews of other major accounting firms. The SEC made no specific allegations about other firms in its report Thursday.
"This report is a sobering reminder that accounting professionals need to renew their commitment to the fundamental principle of auditor independence,” SEC Chief Account Lynn E. Turner said.
In a letter to partners made public Thursday, PricewaterhouseCoopers chairman Nicholas G. Moore and CEO James J. Schiro said that while the report may be embarrassing to the firm, the objectivity and integrity of its audits were never compromised by the infractions.
"These infractions of the independence rules, however unacceptable, did not in any way impair the professional objectivity and integrity of any of our audits,” they wrote.
Pricewaterhouse was created by the merger of Price Waterhouse LLP and Coopers & Lybrand in July 1998. The report said that while a large percentage of the violations can be attributed to structural and cultural problems resulting from the merger, an even larger percentage did not. Fardella also said the company’s reliance on self-monitoring did not work.
"Thus, the situation revealed by the internal investigation is not a one-time breakdown explained solely by the merger,” the report said. "The system failed.”
Pricewaterhouse said that it has put new controls in place to prevent future infractions.
"We are determined to do everything possible so that neither our firm nor our clients ever again suffer from independence-related problems,” Moore and Schiro wrote. 
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