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U.S. Audit Regulator Sanctions PwC Canada for Widespread Employee Cheating on Internal Tests

Soyoung Ho  Senior Editor, Accounting and Compliance Alert

Soyoung Ho  Senior Editor, Accounting and Compliance Alert

The U.S. Public Company Accounting Oversight Board (PCAOB) fined PricewaterhouseCoopers LLP Canada US$ 750,000 for having faulty quality control standards that allowed more than 1,200 professionals to cheat on internal training courses covering auditing, accounting, and professional independence from at least 2016 until early 2020.

More than 1,100 of them were from the firm’s assurance practice.

The training tests included those designed to help auditors satisfy the requirements to maintain their accounting certifications, according to Release No. 105-2022-002, dated February 24, 2022.

“Those quality control failures prevented the Firm from identifying that more than 1,200 Firm professionals were involved in improper answer sharing—either by providing or receiving answers—in connection with tests for mandatory internal training courses,” the PCAOB said in the disciplinary order.

PwC Canada, headquartered in Toronto, is registered with the PCAOB. During the relevant period, the Big Four affiliate was the principal auditor for over 55 public company clients that are overseen by the U.S. SEC.

“After discovering the training-related misconduct in January 2020, PwC Canada reported the matter to the PCAOB and began implementing remedial policies and procedures,” the order stated. “In ordering these sanctions, the Board took into account the Firm’s extraordinary cooperation in this matter, including self-reporting and remedial actions.”

The firm must still undertake specified remedial efforts as part of the settlement.

Separately, the Canadian Public Accountability Board (CPAB) fined the firm CAN$ 200,000.

In a statement, PwC Canada CEO Nicolas Marcoux said that when the firm became aware of the widespread cheating, primarily by junior-level assurance employees—who shared online documents that had answers to some internal assessments—the firm immediately started an investigation with the help of external parties and notified the matter to the regulators.

“We have since undertaken several remediation steps including retraining, additional ethics training, financial penalties, written warnings and terminations where warranted,” Marcoux said. “While we are confident there has been no impact or compromise to the quality of our audits as evidenced by our current inspection results, we expect more from everybody in our firm.”

Details of Widespread Cheating

The order noted that since at least 2016, PwC Canada used an online platform for personnel training. The firm can deliver, track, and record completion of training and testing. And since at least 2016, the firm has required all personnel to take certain online courses, which included tests at the end.

During that period, more than 1,200 employees primarily shared answers via shared drives that they had created on the firm’s computer network. They posted the answers for others to see and provide supplemental answers, according to the PCAOB.

Moreover, the board said that individuals sent emails with attached documents that contained answers; provided answers in hard copy; or discussed answers when taking tests with others.

The shared drives had answers for at least 46 of the firm’s 55 mandatory assurance tests, as well as answers for some firm-wide tests dealing with professional integrity and independence. The misconduct also occurred among managers, directors, and partners.

“The Firm’s investigation revealed that the misconduct was widespread within the Firm’s audit practice, including among those who performed work on audits governed by PCAOB standards,” the order stated.

The PCAOB ordered PwC Canada to set up, revise, or supplement its policies and procedures that provide reasonable assurance that its personnel take tests with integrity, among others, within 90 days.

Within 120 days, the Canadian accounting firm must provide a certification signed by its CEO stating that it has complied with the order. The certification should identify the actions undertaken and provide evidence.

Further, PwC Canada must also submit additional evidence that the PCAOB’s enforcement division requests.

“All of us must consistently live our values and purpose for PwC Canada to be recognized as having the best people in professional services delivering the highest quality work,” Marcoux added. “We value the trust that our clients and community put in us, and we remain committed to ensuring that we continue to earn this trust every single day.”

This is not the first time that a Big Four affiliate had a cheating scandal. In September last year, the PCAOB disciplined KPMG Australia because its auditors cheated on internal tests.

 

This article was originally published in Accounting & Compliance Alert (available on Checkpoint) on February 28, 2022.

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