Accounting Firm Settles Audit Failure Charges with PCAOB

The Public Company Accounting Oversight Board ("PCAOB") imposed a $1 million fine against PricewaterhouseCoopers ("PwC") for shortcomings relating to an audit of Merrill Lynch, Pierce, Fenner & Smith ("Merrill Lynch"). In the settled disciplinary Order, the PCAOB alleged that PwC failed to obtain sufficient evidence regarding Merrill Lynch's compliance with the SEC Customer Protection Rule in FY2014, including the internal controls and representations made in certain Merrill Lynch filings.

In June 2016, the SEC found that Merrill Lynch had violated the Customer Protection rule by holding certain customer securities in accounts that were subject to liens by third parties. Merrill Lynch was assessed a substantial penalty for allowing the liens and for other violations of the Customer Protection Rule.

PCAOB Chair James R. Doty claimed that by failing to adequately examine Merrill Lynch's compliance efforts and representations, PwC did not fulfill its responsibility as an auditor:

"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."

PwC agreed to pay the penalty without admitting or denying the PCAOB allegations.