US regulator fines PwC Australia for late disclosure of leaks scandal

Timothy Moore and Edmund Tadros

Updated Apr 1, 2024 – 6.49pm, first published at Mar 29, 2024 – 6.34am

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The powerful US audit watchdog has fined PwC Australia $US600,000 ($921,000) for failing to disclose it was being investigated by the Tax Practitioners Board for more than a year, in the latest fallout to hit the firm over its tax leaks scandal.

The US Public Company Accounting Oversight Board found that the “siloed nature of the firm’s practices, combined with a lack of [candour] by firm leadership” had caused the delayed reporting.

The PwC scandal was the biggest business story of 2023. Martin Ollman

The PCAOB also ordered PwC Australia to strengthen its compliance with its regulatory requirements. The firm consented to the order without admitting or denying the board’s findings,

The fine, which focuses only on the Australian firm’s tardy reporting, adds new risk to the firm’s global operations from the scandal, which stemmed from a former PwC Australia partner sharing confidential government information with PwC personnel.

PwC International, which currently has “oversight” of the Australian firm, has defied Senate orders to produce a report into the international aspects of the tax leaks. The PCAOB fine is the first time an overseas regulator has acted over the matter.

The PCAOB’s “settled disciplinary order” stated that PwC Australia violated the regulator’s rules and quality control standards, specifically by failing “to timely report” the start and conclusion of proceedings against the firm by the TPB.

‘Not acceptable’

“Failure to disclose required information is not acceptable, and the PCAOB will hold firms accountable,” said PCAOB chairwoman Erica Williams.

The order requires PwC Australia to undertake certain remedial measures to establish, revise or supplement, as necessary, policies and procedures, including monitoring procedures.

The changes are to provide the firm with reasonable assurance that personnel comply with its policies and procedures related to reporting requirements and those policies and procedures related to compliance are suitably designed and are being effectively applied.

A PwC Australia executive told the Australian Senate inquiry into consultants in October that the firm had “unfortunately” missed the statutory 30-day deadline to self-declare “reportable events”.

The firm was first informed in February 2022 about the TPB investigation. The TPB made its finding against the firm and the former partner in November 2022. The matter was reported by The Australian Financial Review in January 2023.

Late report

PwC Australia did not submit its “special report” about the “administrative or disciplinary” matter to the PCAOB until June 20, according to its public report on the regulator’s website. This is more than a year after the initial Tax Practitioners Board alert.

PwC Australia, like other big local auditing firms, has a range of reporting obligations to the PCAOB because of its role in auditing companies based in the US such as the American operations of companies such as Westpac and Woodside Energy Group.

A spokesman for PwC Australia said the firm was sorry for tax leaks matter “and the associated governance and cultural shortfalls under past leadership”.

“This disciplinary order stems from the same issue and we acknowledge this late filing and apologise for our initial failure to report this incident. The firm has cooperated with the PCAOB during this process and has taken a number of steps to improve our policies and procedures related to the reporting requirements.”

He said the firm had already “taken considerable” to “rebuild trust, including installing new leadership and making good progress on our comprehensive transformation program to implement our commitments to change.”

In September 2021, the PCAOB fined KPMG Australia $US450,000 over “widespread” cheating on tests designed to ensure partners and staff acted with integrity and had the relevant skills for their work.

Separately, PCAOB also fined PwC US $US2.75 million over auditor independence violations relating to the actions of the firm’s tax experts.

Timothy Moore writes on monetary policy, equities, commodities and currencies. He is the overnight markets editor and writes Before the Bell. Connect with Timothy on Twitter. Email Timothy at timothy.moore@afr.com

Edmund Tadros leads our coverage of the professional services sector. He is based in our Sydney newsroom. Connect with Edmund on Twitter. Email Edmund at edmundtadros@afr.com.au