International Accounting firm PricewaterhouseCoopers (PwC) was recently fined $1 million by the Public Company Accounting Oversight Board (PCAOB) for failing to obtain sufficient audit evidence that its client, Merrill Lynch, was complying with the Securities and Exchange Commission’s (SEC) Customer Protection rule. The Customer Protection rule requires broker-dealers maintain customer securities in segregated accounts to ensure they are free of any potential claims of Merrill Lynch’s creditors. Had Merrill Lynch failed as a business during the time customer accounts were exposed in this way, the customer accounts could have been wiped out as well.
Merrill Lynch ultimately admitted to wrongdoing, and paid penalties totaling $415 million. While PwC admitted no wrongdoing in the consent agreement between it and PCAOB, it was censured. As part of its role in performing audit and attest services for Merrill Lynch, PwC was required to test the internal controls over Merrill Lynch’s compliance reporting to the SEC – essentially make sure they had adequate processes for complying with SEC regulations. In the modern world, Public Accounting Firms perform many functions beyond auditing financial statements, and perform a vital role in protecting investors; but if they fail to perform their duties adequately, things can go catastrophically wrong.
If you would like to discuss this case or need more information on the subject, contact Jeff Price, a lawyer in our firm’s Consumer Fraud & Commercial Litigation Section at 800-898-2034 or by email at Jeff.Price@beasleyallen.com.
Sources: Accounting Today, PCAOB Press Releases
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