Hey PwC – Practice What You Preach

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Thanks to Leon over at Sox First for bringing this list to my attention. PwC has put out a list of questions that Leon said were for asking at shareholder meetings.

With all the talk about shareholder access and restricting activist investors and limiting what and how anyone but management can get something on the proxy, I think it’s a little disingenuous for PwC to be encouraging the average shareholder to bring a list of curve ball, tough questions to their next shareholders’ meeting and start firing away.

It’s particularly galling since PwC doesn’t seem to hold themselves to the same standards when deciding to re-up as auditor of a client that’s suing them or to continue serving as external auditor of more than one that could have benefited from their asking a few curve ball, tough questions for a change instead of going along for the ride.

I especially like these covering Corporate Governance and the External Auditor:

138. How often do the external auditors meet with the audit committee? Does management participate in the meetings? Does the audit committee meet separately with the external auditors without management present?

139. Does the audit committee review the scope of external audit activities in advance? Does it meet with the external auditors at the conclusion of the audit? What mechanism ensures that the committee follows up on audit recommendations?

140. Does the audit committee appoint the external auditors? What process does the audit committee go through to determine whether to reappoint the existing auditors or select new auditors? Why isn’t the selection subject to shareholder ratification?

141. Does the agreement with the external auditors include any limits on potential liability by the auditors or contain an agreement on the processes that will be used by the company in case of disputes with the auditors?

142. What steps does the audit committee take to oversee or help ensure the independence of the external auditors? Has it received the communications from the auditors about their independence? Have there been any independence infractions by the auditors? How has the board/audit committee satisfied itself that the auditors are independent?

143. Do the external auditors have any relationships with management or the board of directors that may be viewed as a conflict of interest?

144. Did any members of management come from the external audit firm? How many worked on the audit prior to joining the company? Has this information been disclosed to the audit committee? Have any offers of employment been made to members of the current audit engagement team?

145. Is the audit committee responsible for the external auditors’ compensation for audit and nonaudit services? Does the audit committee have a policy for preapproving audit and nonaudit services? Is the audit committee’s preapproval policy compliant with the requirements of the Sarbanes-Oxley Act and SEC rules and regulations?
146. What process does the audit committee use in considering whether the provision of nonaudit services by the external auditors was compatible with maintaining the auditors’ independence?
147. What nonaudit services were provided by the external auditors? Why are the nonaudit fees so high in relation to the audit fees? How do the nature and relative amount of nonaudit fees compare with other companies in the industry?

148. For services provided by the external auditors, has there been a competitive bid process or other means to ensure services are priced and performed at market prices and under standard professional practices? What fees are paid to other consulting firms and what percentage of total consulting fees do the external auditors receive?

149. Do the external auditors audit the company’s benefit plan(s)?

150. Did/does the external auditors provide services in relation to the company’s readiness under Section 404 of the Sarbanes-Oxley Act? Has the audit committee considered any potential independence issues resulting from these services?

151. Do the external auditors advise the company on income tax planning strategies? Has the audit committee considered any potential independence issues resulting from these services? What controls are in place to ensure the external auditors are not providing prohibited tax services?

152. Do the external auditors provide advice on the accounting treatment of various financial structures (e.g., mergers, acquisitions, and divestitures) to the company? Are these transactions reported to the audit committee? Have there been any disagreements with the external auditors over the company’s accounting treatment for these complex transactions?

153. How many years have the external auditors been auditing the company? Has the company considered periodic rotation of auditors? What impact has the company seen as a result of the mandatory partner rotation rules required by the Sarbanes-Oxley Act?

154. Has the company experienced any significant changes in its relationship with the external auditors under the auditing oversight of the PCAOB?

155. Have the auditors undergone a peer review or internal quality control inspection? What were the results of their latest (AICPA-mandated) peer review or internal quality control inspection?

156. What were the results of inspections by the PCAOB of the external auditors?

157. What assessments, if any, has the company made regarding the litigation record of its external auditors? Has the company evaluated the effect of any litigation that the auditors are involved in?

158. Are the company’s external auditors named a defendant in any recently publicized litigation class-action suit? If so, is the company joining this suit for any settlement?

159. Why were the company’s former external auditors dismissed/replaced? Why did the auditors resign or not stand for reappointment?

160. Were there any accounting disagreements with the company’s former external auditors preceding the change? What was the nature of the disagreements?

161. Has the audit committee consulted with its own counsel or another auditing firm? What circumstances gave rise to the consultation? Does the audit committee expect to have similar consultations in the future?

162. Does the company use different auditing firms for any subsidiaries? Are all company operations audited? Was the auditors’ report on any subsidiary’s financial statements qualified? If so, why doesn’t the principal auditors’ report disclose this?

163. Do the external auditors investigate and report on all acquisitions?

164. Do the external auditors visit the company’s major locations on a regular basis?

5 replies
  1. Anonymous
    Anonymous says:

    I would give PwC some credit for publishing these questions. The answers may not always benefit the incumbent auditor.

  2. Francine McKenna
    Francine McKenna says:

    Yes, these are great questions. They’re great for an investor doing due diligence on a company, for a professional services firm qualifying a client for a significant engagement such as an audit, an investigation or internal audit or SOx outsourcing. The list is very long and comprehensive. There are great professionals at all the firms who know what the right thing to do is. Unfortunately, the Big 4 are no longer professional services firms but profit seeking global businesses. Money rules, not doing right by your clients and your profession.

  3. Anonymous
    Anonymous says:

    I know the people who helped write these questions for the firm and you are officially an idiot. They are not for the purposes you claim they are for. I think you are one of those losers that couldn’t hack it in Big 4 and you are bitter. Your posts are poorly written full of misrepresentations and exaggerations. Please just stop writing things you don’t know about before someone sues you for slander.

  4. Francine McKenna
    Francine McKenna says:

    I probably know the people who wrote these questions, too. I rarely critique an individual other than someone in firm leadership, since individuals, even partners, are just revenue producing bodies for the firms. They have a very limited influence on the business of doing the firms’ business and a very short shelf life. It’s the leadership, those that actually run the firms and understand and have control over the business of the firm that I’m interested in. In my over one year of writing the blog, I have neither received a call from anyone’s lawyer nor have I run out of things to write about. The firms just keep on giving. I don’t have to disclose any confidential information I may have gleaned from working at PwC or KPMG, for example. I just wait for that issue to blow up publicly and they always eventually do. Bitter? On the contrary. I have the freedom to put my name on my opinions. Do you? As far as the value of my comments, I let my traffic speak for itself. In fact, PwC professionals, from all over the world, are my number one corporate visitor. How do you like them turkeys?

  5. Francine McKenna
    Francine McKenna says:

    Oh, and I see what you mean about the purpose of the document. “The purpose of this document is to assist management and the board of directors of public companies in preparing for the annual meeting and to enable them to provide informed responses to shareholder questions. This document contains examples of questions that might be asked, based on those asked at annual meetings in recent years, and considering current events.” Even though as a public accounting firm their first priority is supposed to be the shareholders, they have put the emphasis on defending their real client, management and the board. Just shows to go you where their priorites lie. They’re those of a business not a partnership consisting of professionals.

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