PwC hit with $1m fine from PCAOB

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Audit

PwC has been fined $1m (£760,000) by the Public Company Accounting Oversight Board (PCAOB) over failings in its audit of Merrill Lynch in 2014.

The fine was issued by the US-based watchdog, who judged that PwC had failed to follow rules surrounding customer protection during the audit.

Rules put in place by the Security and Exchange Commission (SEC) require broker-dealers such as Merrill-Lynch to “hold certain customer securities in a segregated account free of liens”, in order to protect customer securities from creditor claims.

The investigation found that these rules were violated in 2014, as Merrill-Lynch were holding tens of billions of dollars in accounts with third-party institutions that were subject to liens by the third parties.

The watchdog stated that they believed PwC had failed in its role as an auditor by not obtaining sufficient evidence of Merrill-Lynch’s compliance with these regulations before completing the audit.

PwC consented to PCAOB’s orders.

James R. Doty, PCAOB Chairman commented: “An auditor’s attention to a broker’s compliance with the SEC’s Customer Protection Rule provides critical assurance that the business is protecting customer securities from liens by creditors of the broker.”

“PwC failed to fulfill its obligations during a period when Merrill Lynch exposed billions of dollars of customer assets to claims of its creditors.”

Claudius B. Modesti, director of PCAOB enforcement and investigations added: “Investors should not have to worry that their brokers’ auditors are failing to perform appropriate work in examining the safeguards around their funds.”

“Today’s order demonstrates the enforcement division’s commitment to using its authority to police and sanction those who place investors at risk.”

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