PWC in deep trouble

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I think I've mentioned Francine Mckenna's amazing blog called Re The Auditors before. If not, it's been a massive oversight. Anyone with an interest in professional ethics should read it. Francine goes to places most bloggers don't - writing true investigative journalism.

Look at just two articles from the last couple of days. In the first she looks at transfer pricing abuses by PWC between its Russian and Netherlands based firms. As has been reported from Moscow:

PricewaterhouseCoopers Audit is threatened with the loss of its license for the second time in six months. The Moscow Arbitration Court yesterday released the full text of its decision on the company's tax case. The court agreed with all the arguments of the Federal Tax Service, including the claim that PricewaterhouseCoopers Audit violated the conditions of its license. The conclusions are no less severe than the decision on the illegality of PricewaterhouseCoopers Audit's YUKOS audit reached in court on March 20.

The tax service claims PricewaterhouseCoopers Audit reduced its tax base in 2002 by funneling payments to the Dutch PricewaterhouseCoopers Resources B.V. (now PricewaterhouseCoopers Russia B.V.) in Moscow. PricewaterhouseCoopers Audit lost the case over its tax bill of about 390 million rubles last year when it was unable to prove that the foreign specialist provided any services, but the Supreme Arbitration Court sent the case back for a new hearing on June 10 of this year. Now the court has again not accepted the auditor's evidence of "brainstorming with clients," "general issues" and "business activity" by the foreign experts.

Some people say PWC is a victim in Russia. This doesn't smell like that to me.

Then look at another, even darker story about PWC and its telecoms clients. This is the stuff of thriller novels - except real people are dying here. One of them is a man called Carl Belding - rated as amongst the top 100 lawyers in Europe in 2006. He died on 21 September, falling from a balcony in Switzerland whilst on a business trip. As Francine quotes:

How many grown men of significant business stature "accidentally" fall off a balcony to their death in the country known for it's financial anonymity?

Now I make clear - no one is saying if he was pushed, or who pushed if he was. But as Francine patiently shows, Belding worked for Nokia who were deep in litigation with a company called Qualcomm, and Belding and may have been conflicted as a result. But he wasn't alone. PWC are auditors of both Nokia and Qualcomm:

As for PwC, their fingerprints are all over this story. It's interesting to read the disclosures or lack thereof in both Nokia's and Qualcomm's Annual Reports about their pending litigation. Both reports have almost the word for word, exact same text that basically, in following FAS 5 says that there is no reserve and no disclosure necessary. How does it work when an audit firm is on all sides of such heated litigation?

Not well, is a simple answer.

PWC has a lot to learn on such issues it seems to me. They're far to common.

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