Price Waterhouse Coopers is known as one of the largest auditing firms in the world, and a member of the ‘Big 4’ auditing companies. When I’ve been researching becoming a consultant, I’ve been really interested in the question of who actually audits them. Who audits the biggest auditors?
Although the specific firm that audits PwC may vary from year to year, they are annually audited by another large accountancy firm, typically another of the ‘Big 4’ (Deloitte, EY, KPMG). They are also inspected by the Public Company Accounting Oversight Board (PCAOB).
The PCAOB is an independent organization that oversees the audits of public companies. In other countries, PwC will be subject to audits by other organizations.
In this post, I’ll go fully into the facts behind who audits PwC and how. I’ll look at:
- Who audits PwC in the States and around the world
- Who also inspects their financial statements
- A look at these auditing organizations
- How they conduct their audits (and why)
- Who exactly are PwC
Who Audits Price Waterhouse Coopers?
As a hugely influential and powerful global company, Price Waterhouse Coopers is subject to rigorous auditing.
It is crucial to ensure they are following good-quality accounting and financial procedures, to protect investors and the wider economy.
Although it varies from year to year, Price Waterhouse Coopers is audited by another large accountancy firm.
The specific firm they choose is selected by the Auditing Board, and ratified by the Board Of Governors.
Of course, PwC operates in around 150 countries across the globe. It is subject to audits by regulatory bodies in many of these countries also, such as in the UK where it is audited by the Institute of Chartered Accountants in England and Wales.
In India, they are audited by the Institue of Chartered Accountants of Inda (ICAI).
In the United States, the main inspection that is carried out on them other than the official audit is an inspection by the PCAOB…
Inspection By The PCAOB
The Public Company Accounting Oversight Board (PCAOB) conducts inspections of PwC in the United States. (Source) The PCAOB is an organization independent of the government, and a non-profit enterprise.
The PCAOB has been operating for over twenty years, and its main role is to conduct inspections of registered accounting firms.
They are particularly checking that PwC is following:
- The regulations set out by the Sarbanes-Oxley Act of 2002 (more on this in a moment)
- The rules set out by the SEC (Securities and Exchange Commission)
In addition to this, there are other professional organizations that regulate ethical guidelines for auditing firms. These include:
- The American Institue of Certified Public Accountants (AICPA)
- The Institue of Management Accountants (IMA)
Both of these are responsible for ensuring that auditing firms are conducting high-quality audits that are unbiased, reliable, and have integrity.
This is particularly so the public and investors can have confidence in these processes.
Who Are The Public Company Accounting Oversight Board?
The Public Company Accounting Oversight Board (PCAOB) is an entirely independent and non-profit organization, that regulates and inspects public companies in the United States. (Source)
They were created as a result of several financial scandals in the very early 2000s (Enron being probably the most well-known of these).
There was an act of Congress, called the Sarbanes-Oxley Act of 2002, and the PCAOB was formed after this. The PCAOB was formed to protect investors and the public.
It is there to make sure that the financial statements of public companies are correct, and so give both investors and the public confidence.
Not only do they inspect PwC, but they inspect all of the other ‘Big Four’ as well – EY, Deloitte, and KPMG.
The PCAOB is actually very powerful, with lots of possible measures it can draw from. It is looking to impose:
- Accuracy of financial statements
- The following of regulations
Here is a really good introductory video about what the PCAOB is and does that I found on Youtube:
How Do The PCAOB Audit Companies?
The PCAOB carries out inspections in two distinct ways:
- They have regular and planned inspections that they conduct
- They may conduct impromptu spot-checks on companies. This is particularly in response to complaints or concerns that they may receive
During an inspection, the PCAOB will normally look at some of the following:
- A full review of the firm’s quality control policies and procedures
- Review a sample of the firm’s audit work
- Assess the firm’s compliance with professional standards
- They will interview employees
Do not underestimate the power of the PCAOB. They have a wealth of possible sanctions that they are able to invoke if they are required to. If they find serious breaches of regulations and rules, they can do any of the following:
- Impose fine
- Revoke a firm’s registration
- Bring enforcement actions against individuals who violated professional conduct regulations
Who Are The Securities And Exchange Commission (SEC)?
The PCAOB will be checking procedures at PwC, and that they align with the rules and regulations set up by the Securities and Exchange Commission (SEC).
Who is the SEC?
This is an independent government agency in the US. They are responsible for enforcing federal securities laws.
The SEC’s main purposes are to:
- Maintain fair and orderly markets
- Protect investors
- Facilitate capital formation
The SEC has five Commissioners who are appointed by the US president. They serve 5-year terms and are responsible for setting policies for the agency.
There is also a Chairman that leads the organization and is again selected by the President.
The SEC has several divisions, including:
- Division of Corporation Finance – responsible for reviewing registration statements
- Division of Enforcement – that investigates and brings enforcement actions against individuals and companies that break securities laws
- Division of Trading and Markets – which oversees transfer agents, brokerage firms, and other participants of the securities markets
They have a very important role in protecting investors in the US.
You can find out more about what the SEC is in this Youtube video:
What Is The Sarbanes-Oxley Act Of 2002 (That They Are Audited Against)
The Sarbanes-Oxley Act of 2002 was an act that was passed in response to several high-profile financial scandals in the early 2000s. Two of the most well-known of these were Enron and WorldCom.
The Sarbanes-Oxley Act was set up to protect future investors by improving the accuracy and legitimacy of financial statements for public companies.
The Act included the following:
It made companies and their top executives more accountable for their financial reporting.
The Act involved the following:
- It made top executives more accountable for their financial reporting
- Establishing the PCAOB
- Whistleblower protection – anyone that reports illegality such as fraud is now protected
- Corporate governance – improving accountability of Directors and Corporate Officers
- Disclosure requirements – companies are required to disclose more information about their risks and financial performance
Here is a Youtube video that explains exactly what the Sarbanes-Oxley Act of 2002 is:
Who Are The Institue Of Chartered Accountants In England And Wales?
Of course, PwC must be audited by different institutions in the different countries that it operates in (which is approximately 150!) (Source)
There wouldn’t be time to look at all of the other auditing organizations, but let’s just pick one other country – the United Kingdom.
In the UK, PwC is audited by the Institue of Chartered Accountants in England and Wales (ICAEW).
Who is the ICAEW?
They are a membership organization of professionals, representing accountants in England and Wales.
They have several different functions, including:
- Setting professional standards
- Providing training to their members
- Conducting research on important issues related to accounting
- Development opportunities
- Investigating and disciplining those that violate standards
I think it’s fair to say that the ICAEW has similar powers to the PCAOB.
Technically speaking, the ICAEW cannot close firms down (whereas the PCAOB can).
However, they can revoke the membership of anyone they find that has violated professional standards.
In reality, this would mean that the organization or professional would not be able to continue trading anyway, so it’s kind of the same if the truth is told!
Do Price Waterhouse Coopers Audit Themselves?
The main auditing that PwC has to go through is external.
However, they also conduct internal inspections and quality control on their own systems. As an auditing firm, they are expertly placed to do this.
It should be noted, though, that this is not the firm’s official audit. That will only come through an external source.
Internal audits will be looking to ensure the quality of its services.
Who Are Price Waterhouse Coopers?
Price Waterhouse Coopers (PwC) was formed in 1998 by a merger of two firms:
- Price Waterhouse
- Coopers and Lybrand
They are now one of the largest professional services firms in the world, and a member of the ‘Big 4’.
They provide a range of services to clients, such as:
- Tax services
- Advice on tax planning and compliance with tax laws
- Audit and assurance services
- Independent auditing of financial statements
- Consulting services
- Advice on strategy, technology and operations
- Advice on mergers and acquisitions
- Forensic services, such as fraud detection and prevention
PwC has a huge global network. It spans approximately 150 countries.
In the United States, it has a branch in the vast majority of States.