PCAOB cracks down on ex-PwC Brazil partner over audit failure

A former partner at PwC’s Brazilian firm has been fined $10,000 (£8,021) and given a two-year ban by the Public Company Accounting Oversight Board (PCAOB) for audit failures in relation to the accounts for US consumer goods and bakery supplier Sara Lee

Wander Rodrigues Teles was the lead partner for PwC Brazil's 2010 and 2011 audit work on the Brazilian subsidiaries of Sara Lee Corporation, including Sara Lee Cafés do Brasil Ltda.

The PCAOB found that Teles failed to adequately respond to indications that Sara Lee Cafés may have overstated its accounts receivable.

According to the PCAOB, after an internal investigation Sara Lee said its net accounts receivable, as originally reported, was overstated by approximately R$151m (£39m), or 246% at FYE 2010, and R$170m or 263% at FYE 2011. Its total assets, as originally reported, were also overstated by approximately R$102m (14%) and R$121m (15%) at FYE 2010 and FYE 2011, respectively.

In 2012, Sara Lee restated its 2010 and 2011 financial results, citing accounting irregularities in its Brazil operations, including the overstatement of accounts receivable.

According to the PCAOB’s findings, Teles knew that a material amount of Sara Lee Cafés' accounts receivable was overdue and disputed by customers. He also was aware that the subsidiary was extending the due dates of overdue receivables, indicating that Sara Lee Cafés may have overstated its accounts receivable.

The PCAOB found that Teles failed to adequately respond to these risks with appropriate due care and professional scepticism, and failed to obtain sufficient evidence to support his audit conclusions.

Claudius Modesti, director of PCAOB enforcement and investigations, said: ‘Faced with indications of possible material misstatements, the lead partner did not exercise appropriate professional scepticism. He repeatedly ignored information suggesting that the company's financial information was materially misstated.’

Teles did not admit to or deny the findings in the PCAOB order, under which he is fined $10,000, and barred for two years from associating with a registered public accounting firm.

James Doty, PCAOB chairman, said: ‘Audit quality is a global issue. As this order demonstrates, the board is committed to investigating and disciplining auditors who present risks to investors in the US markets, regardless of where the audit is conducted.’

In a statement, PwC Brazil PwC said: ‘The settlement with the PCAOB details actions occurring six years ago by a former PwC partner who left the firm two years ago.

‘PwC Brazil is not a party to the settlement. PwC Brazil’s activities are governed by the highest standards and obligations, which we are committed to meeting. The quality and integrity of both our services and our people remain the foundation of our business as they have been for more than 100 years.’

The PCAOB disciplinary order relating to Teles is here.

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