PwC Fined For Merrill Lynch Compliance Failure
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PwC LLP has been censured and slapped with a $1m fine by the Public Company Accounting Oversight Board, after the auditor failed to ensure that Merrill Lynch had complied with a regulation requiring broker-dealers to protect customer assets from creditor claims.
The board’s action represented the first time it has sanctioned one of the ‘Big Four’ accounting groups for failing to comply with a 2014 audit and attestation standard it issued under the Dodd-Frank financial regulation act.
PwC in February 2015 had issued audit and examination reports “without obtaining sufficient evidence about Merrill’s compliance assertions”, said the PCAOB, the non-profit corporation established by Congress to set standards for public company audits.
“PwC failed to fulfil its obligations during a period when Merrill Lynch exposed billions of dollars of customer assets to claims of its creditors,” said James Doty, the board’s chairman.
The action was linked to a June 2016 Securities and Exchange Commission case that charged Merrill Lynch with failing to safeguard about $60bn in customer assets over a period of several years.
Merrill Lynch, Bank of America’s broker-dealer arm, agreed to pay a $415m penalty and admitted wrongdoing to settle the SEC charges. PwC’s job was to verify Merrill’s assurances that it had complied with the regulation.
Under SEC regulations, broker-dealers are required to segregate certain customer cash and securities in special accounts that are off limits to creditors in the event that the broker-dealer fails.
If Bank of America had collapsed between 2009 and 2012, its customers would have been in danger of not having their assets returned to them, the SEC said.
“Investors should not have to worry that their brokers’ auditors are failing to perform appropriate work in examining the safeguards around their funds,” said Claudius Modesti, the PCAOB’s director of enforcement and investigations.
PwC agreed to the order without admitting or denying the board’s findings. A private company, it said annual revenues last year were nearly $36bn.
Still, the audit board’s aim is that the modest $1m fine will serve as a deterrent to further audit failures. “We think a seven-figure settlement is significant for an accounting firm,” said Mr Modesti, noting that the board’s investigation found “very significant audit deficiencies”.
The alternative to settling the case would have been a lengthy investigation likely followed by a legal battle that would have not been conducted in public view, Mr Modesti said.
Source: FT
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