In the News
Ex-top SEC official: PwC repeatedly violated independence rule
MIAMI (August 24, 2016) ---- A former chief accountant for the Securities and Exchange Commission testified Wednesday that PriceWaterhouseCoopers lost its independence in 2005 and 2006 when its client, Colonial Banc Corp., hired a top PwC senior auditor who had been involved in the financial institution's audits.
The testimony came in the wake of an earlier judge's ruling that PwC was not independent in it 2004 audit of Colonial.
The senior auditor in question was Brent Hicks, a PwC senior manager who went to work as chief accounting officer for Colonial in Montgomery, Alabama. He did so at the invitation of Sarah Moore, the chief financial officer at Colonial Banc Corp., the parent of Colonial Bank.
Appearing as an expert witness in an audit negligence trial against PwC,, Lynn E. Turner said the hiring violated an SEC rule governing auditor independence. While serving as chief accountant at the commission, Turner assisted in the drafting of the 2002 Sarbanes-Oxley Act, which among other things tightened federal rules governing the independence of audits of publicly traded companies.
"The value of an audit is making sure that you have an objective mindset and you are unbiased as you look through those numbers," Turner testified.
"When someone works on the audit and leaves the audit firm and goes to work [for] the company, there is a concern that they may be able to circumvent the audit at the company ...," he said.
Under questioning by plaintiff lawyer Steven Thomas, Turner said that Colonial's need to hire Hicks away from PwC did not rise to the level of the type of "emergency" envisioned in an exemption to a rule governing auditors who cross over to work for clients.
The SEC rule requires a one-year cooling-off period before such a move can be made. Hicks, a senior manager at PwC for the 2004 Colonial audit and the first two quarters of 2005, joined Colonial months before the cooling-off period expired.
Turner said exemptions to the rule "are rare." And the bank's stated difficulty in hiring a suitable candidate in a city such as Montgomery, the capital of Alabama, did not qualify. PwC's independence as an auditor is a key issue in the negligence case filed against the Big 4 accounting firm by the bankruptcy trustee of defunct Taylor Bean & Whitaker, once one of Colonial's largest clients.
The trustee alleges the firm negligently issued clean audit opinions for Colonial while it missed a massive fraud at the financial institution. The trustee, Neil Luria, is seeking $5.5 billion in damages on behalf of up to 1,000 claimants.