August 21, 2018

PwC Toeing Thin Line Between Independent Auditor and Client Lobbyist for Tax Reform

Francine McKenna of MarketWatch reported on July 30 that PwC has earned $10.74 million since 2013 as the exclusive registered lobbyist on tax reform for a coalition that includes several audit clients, which some say is a conflict of interest.

Members of the Alliance for Competitive Taxation—which calls itself “a group of America’s leading companies who believe it is time for comprehensive tax reform”—include big-name PwC clients like Bank of America, JPMorgan Chase, Caterpillar, and IBM, according to McKenna.

All told, 16 of the coalition’s 37 members use PwC to produce their financial audit opinion, while 11 are EY audit clients and the rest either engage KPMG or Deloitte.

In case you needed a reminder, McKenna noted:

Federal securities laws require auditors to be independent of, including prohibiting auditors from serving in an “advocacy role” for audit clients. Regulation S-X of the Exchange Act states “an accountant is not independent whenever, during the audit and professional engagement period, the accountant … acts as an advocate for the audit client.”

Former Securities and Exchange Commission Chief Accountant Lynn Turner called PwC’s tax reform advocacy efforts “a clear-cut violation of auditor independence.”

He told MarketWatch:

“Investor confidence in the reliability of a corporation’s financial statements depends upon the public’s perception of the outside auditor as an independent professional. If they see the auditor advocating for the client, the value of the audit itself could be lost.”

PwC declined to comment on the firm’s contract with the coalition, according to McKenna.

And as the MarketWatch article mentions, EY got in a little trouble—$4 million worth—with the SEC in July 2014, after the SEC found that an EY subsidiary, Washington Council Ernst & Young, lobbied congressional staff on behalf of two audit clients. Despite providing these forbidden lobbying services, EY repeatedly maintained that it was “independent” in audit reports issued on the clients’ financial statements.

This caused Adrienne to write at the time:

Everyone lobbies. If you think the Big 4 don’t lobby their asses off for their own clients, therefore themselves, I have a bridge to sell you.

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[MW]

Illustration: iStock/aklionka

1 Comment

  1. Why would PwC want tax reform? It seems to me that the best thing for PwC’s tax business would be to make the regulations MORE complex.

    Maybe PwC is just pretending to want tax reform to impress their clients. Surely the lobbying fees PwC is earning can’t be more than the potential windfall that would come from more complex tax rules.

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