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PwC to Defend Audit Work, Independence in Whistleblower Trial

Feb. 22, 2021, 9:45 AM

PwC will try to convince a San Francisco judge that its Silicon Valley staff acted appropriately in the audits of two tech companies and that it rightly fired a whistleblower.

The firm faces defending its reputation and commitment to independence from its clients in a bench trial set to begin Monday. Former PwC LLP senior manager Mauro Botta accuses the firm of firing him in retaliation for submitting complaints to the Securities and Exchange Commission and other accounting and audit regulators, saying the firm had a too cozy relationship with its clients and allowed weak internal controls to slide.

“If we assume that the whistleblower is credible and we assume that the whistleblower is telling the truth, that everything he has said is accurate, then I would say that his claims are an indictment on the culture of PwC’s Silicon Valley office,” said Daniel Taylor, associate professor at the Wharton School for the University of Pennsylvania. “But that’s a big if.”

PwC called the allegations false, and said that it stands behind its audits of Cavium Inc. and Harmonic Inc, work that dates back more than six years. Audit quality is a top priority and the firm has taken various steps to improve the effectiveness of its work and improve its annual regulatory inspections, the firm said in a statement to Bloomberg Tax.

Botta’s lawyers declined to comment Friday.

In court filings, PwC claims that Botta signed off on the audits despite his concerns. He also “fabricated an internal control and falsified audit documentation” and then lied about doing so during an internal investigation, according to PwC. As a result, he was fired for what the firm considered to be serious misconduct, not because of his SEC complaint.

Firms often have zero-tolerance policies for such behavior, which could trigger an enforcement action by the U.S. audit regulator, said Michael Dell, a partner at Kramer Levin Naftalis & Frankel LLP.

“What this really seems to come down to is an employment complaint,” Dell said.

Botta’s lawyers, in court filings, said that the case is about the inherent conflict between auditors role serving the interests of investors and the need to retain paying clients.

His lawyers said allege the firm moved Botta off assignments when his “honest questions jeopardized a profitable relationship.” They say he submitted his complaint to the SEC in 2016 because he believed there was a violation of SEC rules or regulations, giving him protection as a whistleblower under the Enron-era Sarbanes-Oxley Act.

According to PwC filings, the SEC investigated Botta’s claims and closed its inquiry without bringing any enforcement cases.

Still, Taylor said he is concerned that the picture Botta’s allegations portray is that such behavior is just business as usual. “What is the value of an audit to investors if the audit office is compromised?” he said.

Regardless of whose allegations are proven to be true, Botta’s experience as a whistleblower isn’t unusual, Taylor said.

While the law’s whistleblower protections extend to external auditors, PwC could be found to be justified in firing Botta if the judge decides that he also took part in misconduct, said David Mair, a lawyer with Kaiser Saurborn & Mair P.C. who represents whistleblowers.

Still the case serves as a reminder for the auditing profession.

“No matter how important a client may be, the accounting and auditing profession has legal obligations to both raise concerns regarding client conduct if that client is publicly traded and also not punish the whistleblower internally who flags these concerns,” Mair said.

The case is Botta v. PricwaterhouseCoopers LLP, N.D. Cal., 3:18-cv-02615-AGT.

To contact the reporter on this story: Amanda Iacone in Washington at aiacone@bloombergtax.com

To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergindustry.com; Yuri Nagano at ynagano@bloombergtax.com

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