Regulator forces PwC to reach $5m settlement

Doubts about the integrity of US corporate reporting intensified last night, after Pricewaterhouse Coopers reached a $5m settlement with the US market regulator over a series of accounting irregularities.

The securities and exchange commission announced that PwC had agreed to the "settlement enforcement" over conflicts of interest in auditing the accounts of 16 firms between 1996 and 2001. In two cases, it said, PwC audited the treatment of fees paid to its own consulting arm.

"This case demonstrates the heightened risk of an audit failure when an accounting firm assists in and approves the accounting treatment of its own consulting fees," said Stephen Cutler, the SEC's director of enforcement. "Faced with that situation here, PWC lacked the objectivity and impartiality required of an independent auditor."

In the case of one firm, Pinnacle, the damning SEC statement accuses PWC of "establishing more than $24m in improper reserves and in improperly capitalising approximately $8.5m in costs, including $6.8m in fees paid to PwC for consulting and other non-audit services that should have been expensed."

Dennis Nally, PwC's chairman, said yesterday the firm neither admitted nor denied the SEC's judgment, but had opted to settle the case so that it could move on. "In this time of heightened scrutiny of the accounting profession, we felt it important to resolve these former matters once and for all and direct our energy and focus on the future," he said in a letter to his fellow partners.

"We will make a financial payment to the US treasury and have agreed to enhance our audit procedures to ensure that similar situations do not occur in the future."

PwC is keen to avoid being tarred with the same brush as Arthur Andersen, which saw business collapse following its involvement with US energy group Enron. But the strong tone of the SEC's judgment is unlikely to bolster market confidence.