US audit watchdog finds faults with PwC audits
Reuters - Fri Oct 19, 2007 6:33 PM ET
WASHINGTON, Oct 19 (Reuters) - The U.S. board that polices corporate auditors said on Friday it found a number of faults with PricewaterhouseCoopers LLP's [PWC.UL] audits, including a failure to adequately test mortgage servicing rights -- an area that is being closely watched during the subprime fallout.
The Public Company Accounting Oversight Board http://www.pcaobus.org/ cited a case with an unnamed company and said PwC failed to appropriately test whether the company's analysis of mortgage servicing rights complied with an accounting rule known as "FAS 140." That rule governs the accounting for asset-backed securities products like mortgage-backed securities.
According to the report, the company included over 90 percent of its mortgage servicing rights in one layer despite the fact that the loans displayed varying risk characteristics like fixed rate, variable rate and hybrid mortgages.
"The firm accepted the issuer's approach," the report said. "The firm failed to resolve potential audit differences."
In another case, the report said PwC failed to perform sufficient procedures to test consolidated revenues with a company that operates in many different industry segments with numerous reporting units.
Board staff inspected PwC from May 2006 through January 2007, looking at the firm's national office and 22 of its 63 offices in the United States.
In total, the board found deficiencies with PwC's audits for six unnamed companies. The PCAOB is not allowed to name the companies with problems.
In a formal response to the report, PwC said it had reassessed its work on each of the specified audits and concluded that in each instance its original procedures were sufficient to support its conclusions.
"PricewaterhouseCoopers believes we are performing quality audits. We strongly support the work of the board and believe that the annual inspection process is an important element in helping us meet our firm's objective of achieving consistent, quality audits," David Nestor, a spokesman for the firm, said on Friday.
The board has been inspecting the major accounting firms annually since the Sarbanes Oxley Act was implemented in 2002 to help bring order to the industry after a series of book cooking scandals wreaked havoc on the markets.
The PCAOB has completed its annual inspections for the other three big accounting firms, Deloitte & Touche LLP [DLTE.UL], Ernst & Young LLP [ERNY.UL] and KPMG [KPMG.UL].(Reporting by Rachelle Younglai)
Wouldn't we like to know which servicing company this is? PCAOB's reports are to be found on their website but they are all redacted in order to protect identity of the criminals. PCAOB has no right to use the world Public in their name!