PricewaterhouseCoopers Ethical and Professional Standards

Please only write about "• Compare and contrast the two events encountered by PwC and discuss if they have violated any ethical or professional standards. " among all the requirements.

AMIS 4500-Memo #1   {Due 2/13/20}

Attached are two articles dealing with events regarding PwC.  

REQUIRED:

Prepare a memo (typed, three pages, one staple, one-sided, double spaced, 12-pitch, New Times Roman, and 1 inch margins) in diverse teams of between four to seven members addressing the following points:

• Discuss the role of the audit and perform an audit risk assessment for these two clients.

• Compare and contrast the two events encountered by PwC and discuss if they have violated any ethical or professional standards.

• In your professional opinion, which event would PwC suffer greater lost credibility?  Stated differently, which event was more egregious?  Your response should consider the position of both the client and main users of financial statements (e.i., shareholders and creditors).

• Briefly discuss PwC’s potential legal liability for these two these events.

• Briefly discuss if PwC responded to these two events in an appropriate manner.

Oscars Mistake Casts Unwanted Spotlight on PwC

(by David Gelles and Sapna Maheshwari, New York Times, February 27, 2017)

As the Oscar for best picture was being presented at the 89th Academy Awards on Sunday night, Tim Ryan, the United States chairman of PwC, was sitting in a plush seat in the Dolby Theater, watching with satisfaction.

PwC, an accounting firm based in London, has tabulated the votes for the Academy Awards for 83 years. And the Oscars, while not its most lucrative client, is perhaps its most important. The firm leans on its long history as Hollywood’s chief vote-counter to enhance its appeal in efforts like business development and recruiting. So when “La La Land” was named the best-picture winner and the producers began delivering their acceptance speeches, it appeared Mr. Ryan’s work for the night was done.

Then chaos erupted on the stage. A PwC partner had handed Warren Beatty, a presenter of the award, the wrong envelope. Faye Dunaway, presenting the award with Mr. Beatty, erroneously announced that “La La Land” had won. Moments later, after the two PwC partners who oversee the voting came onstage, the “La La Land” producers announced that “Moonlight” was in fact the winner.

Mr. Ryan watched in horror as the bizarre scene played out before Hollywood’s biggest stars and millions of people watching around the globe. In a dizzying turn of events, his firm, which normally occupies a back seat at the glamorous event, was suddenly at the center of one of the most sensational stories in Oscars history.

“I knew something was up,” he said in a telephone interview on Monday, zeroing in on the discordant moment when he noticed two of his employees interrupting the best picture acceptance speeches. “It’s not their job to come out on stage.” As the magnitude of the gaffe set in, Mr. Ryan went into crisis-management mode. “What was going through my head at the time was, ‘We have to get to the bottom of this, and if we made a mistake, we’ll own up to it,’” Mr. Ryan said. “My philosophy in life is, bad news doesn’t age well.”

Reaction to the mistake has been swift and harsh. “The accountants have one job to do — that’s to give Warren Beatty the right envelope,” Leslie Moonves, the chief executive of CBS, said in a videotaped interview after the show, which was broadcast on ABC. “That’s what these people are paid a lot of money to do. If they were my accountant, I would fire them.” PwC was quick to accept responsibility for the mistake.

(Post-script:  PwC continued to service the Academy Awards, but with new partners and new controls.)

PwC to pay $335 million over failed audits of Alabama's Colonial Bank: U.S. regulator

(by Katanga Johnson, Pete Schroeder; Reuters; March 15, 2019)

WASHINGTON (Reuters) - A top U.S. banking regulator said on Friday that PricewaterhouseCoopers will pay $335 million to settle claims of “professional negligence,” after saying the auditor should have identified problems leading to the 2009 collapse of Alabama-based Colonial Bank. PwC did not confirm or deny the claims, but agreed to pay the settlement fine, the Federal Deposit Insurance Corporation (FDIC) said in a statement.

The settlement is significantly lower than the $625.3 million a federal judge ordered the firm to pay the regulator in July 2018. Martin Gruenberg, a former FDIC chairman, dissented from the settlement because it did not require PwC to admit liability. The FDIC accused PwC of negligently auditing Colonial from 2003 to 2005 and in 2008, and making “reckless and grossly inaccurate” reports and sued the company in its role as receiver for Colonial Bank, which once had over $25 billion in assets and 340 branches. At the time, PwC had argued that the FDIC could recover $306.7 million at most, and that no damages were justified because numerous Colonial employees had interfered with its audits.

Judge Says PricewaterhouseCoopers Was Negligent In Colonial Bank Failure

(by Michael Rapoport; The Wall Street Journal)

PricewaterhouseCoopers LLP was negligent in connection with one of the biggest bank failures of the financial crisis, a federal judge has ruled, opening up the Big Four accounting firm to the potential of hundreds of millions of dollars in damages. PwC violated auditing rules and didn't take steps that could have detected a $2 billion fraud scheme that contributed to the 2009 failure of Alabama's Colonial Bank, the judge ruled. The ruling Thursday came in a lawsuit brought against PwC by the FDIC.

The lawsuit concerns a fraud scheme centering on Taylor Bean, once one of the nation's biggest mortgage companies. Taylor Bean was a major customer of Colonial's, and authorities have said Taylor Bean overdrew its Colonial account for years to cover its own cash shortfalls. The mortgage firm covered that up by, among other things, pledging Colonial thousands of mortgages as collateral it had already sold to other investors, according to authorities. A PwC intern was assigned to audit $1.2 billion of the mortgages pledged as collateral for the loans and she reported she “felt the collateral was adequate”. After the fraud was discovered, Taylor Bean filed for bankruptcy in August 2009, and Colonial failed soon after, costing the FDIC's deposit insurance fund billions of dollars. Over 7,000 people lost their jobs at both firms and eight people were convicted in the scheme with prison sentences between 2 to 30 years.

PwC was the outside auditor for Colonial's bank holding company and gave Colonial clean audits that blessed its financial statements for years. The FDIC and the Colonial trustee had alleged PwC was negligent in not detecting the fraud scheme, and they sued the firm in 2012 and 2011, respectively. Judge Rothstein agreed, saying PwC failed to design its audits to detect fraud, violating auditing standards. She also said PwC could have uncovered the fraud simply by inspecting some of the underlying documents for the mortgages at issue, but it didn't. During the trial, it was revealed that Colonial Banc hired a top PwC senior manager, Brent Hicks, as their chief accounting officer who had previously been involved in the financial institution’s audits. 

But Colonial can't recover damages because its hands aren't clean, the judge said. Its own employees were involved in the fraud, and the bank itself was negligent and its employees interfered with PwC's audits, she said. PwC’s defense appears to exculpate their actions on the basis that they cannot catch every fraud, especially when a determined team of finance professionals conceals their crime. PwC claims that sophisticated frauds are difficult to detect and audits are no guarantee of exposure. Gary Westbrook, the lead auditor on the Colonial account, argued that a cabal of highly intelligent and organized fraudsters planned to bamboozle the auditors.