The U.S. regulator of corporate auditors will soon release a report criticizing quality controls at PricewaterhouseCoopers PWC.UL, according to an internal PwC memo obtained by Reuters.
The report from the Public Company Accounting Oversight Board (PCAOB) will fault PwC for not promptly addressing quality control problems found during inspections of some of its 2007 and 2008 audits, according to the memo.
The March 7 memo was signed by PwC U.S. Chairman Robert Moritz.
In the memo, PwC defended its efforts to improve quality controls and said it was disappointed with the watchdog's report. It said the PCAOB's criticisms "relate to some of the most complex, broad, judgmental and evolving areas of auditing."
Spokeswomen for PwC and the PCAOB declined to comment on the memo.
Only once before has the PCAOB made public a report criticizing quality controls at a Big Four audit firm. In October 2011, it faulted Deloitte DLTE.UL for not doing enough to promptly improve audit quality systems.
Deloitte, PwC, KPMG and Ernst & Young are the four largest corporate auditing firms, dominating their market worldwide.
Congress formed the PCAOB in 2002 after accounting scandals at several large corporations, including Enron Corp. Previously, the audit industry was self-regulated.
The board inspects major audit firms every year and reports on problems found in individual audits. Criticism of overall quality procedures remains private if the firm corrects the problems within 12 months of an inspection report.
In the memo, addressed to partners and retired partners, PwC said it had the right to appeal the PCAOB's conclusions to the U.S. Securities and Exchange Commission, but decided not to. It said it did not want to spend time on findings "that we believe we have addressed or are currently addressing."
Some of the PCAOB report's criticisms concern estimates, "professional skepticism," and supervision, the memo said.
Professional skepticism refers to auditors' obligation to look skeptically at companies' books, a role meant to provide an independent check against misleading financial statements. This has been the subject of frequent criticisms by the PCAOB in its inspections and comments on the audit industry's performance.
(Editing by Kevin Drawbaugh and Lisa Von Ahn)