PricewaterhouseCoopers Pays $5M

PricewaterhouseCoopers has agreed to pay $5 million to settle federal regulators' allegations that it violated rules designed to keep accountants independent from the companies they audit, the government announced Wednesday.

The Securities and Exchange Commission said the big accounting firm's violations involved 16 separate audits of 16 publicly traded companies from 1996 to 2001. PricewaterhouseCoopers approved the accounting treatment of its own consulting fees, the agency said.

As a result of the audits, the SEC said, the 16 companies filed financial statements with the agency that did not comply with securities laws.

PricewaterhouseCoopers neither admitted to nor denied wrongdoing in the settlement, in which it also agreed to be censured for engaging in improper professional conduct and to make changes in how it operates.

The issue of auditor independence is among those at the heart of the recent string of corporate accounting failures, starting with Enron Corp. and its auditor Arthur Andersen, which have raised questions about accounting firms having done both auditing and consulting work for major corporations.

"An auditor's objectivity is critical to the financial reporting process," said Stephen Cutler, director of the SEC's enforcement division. "Impairment of an auditor's independence undermines that process and erodes public confidence in our capital markets."

In May, the SEC alleged that another Big Five accounting firm, Ernst & Young, violated the auditor independence rules by engaging in business with a software company client. That allegation was later dismissed, however, by an administrative law judge at the SEC.

The SEC said that PricewaterhouseCoopers entered into improper fee arrangements with the audit clients, in which the companies hired PricewaterhouseCoopers' investment bankers to provide financial advice for a fee that depended on the success of the transaction the company was pursuing.