Dive Brief:

• The Public Company Accounting Oversight Board announced a settled disciplinary order sanctioning Kesselman & Kesselman C.P.A.s, or “PwC Israel” — a member firm of Big Four company PricewaterhouseCoopers — for quality control violations related to "widespread improper answer sharing,” according to a Tuesday press release.
• “From 2017 to 2022, the firm failed to detect or prevent extensive, improper answer sharing on tests for mandatory internal training courses,” the PCAOB said. While PwC Israel's code of conduct “required that Firm personnel act with integrity generally,” the code had “no specific prohibition against answer sharing on training tests,” the PCAOB said in a Tuesday report on the settled order.
• PwC Israel agreed to pay a $2.75 million civil penalty without admitting or denying the findings, as well as agreeing to “review and improve” its quality control policies and procedures. The order is “not addressed to criticizing or finding fault with any of our clients’ deliverables or any audits,” a PwC Israel spokesperson told CFO Dive via email. “Nevertheless, when we do not meet the high standards we set for ourselves, even outside any particular client work, we take action to learn the lessons and do better.”

Dive Insight:

The matter was first identified in 2022, with the Tel Aviv-based firm informing the PCAOB immediately upon discovery, as well as initiating an investigation conducted by an external law firm, the spokesperson said.

The sanctions represent the newest bid by U.S. regulators to crack down on quality control standards at Big Four firms. In 2023, the PCAOB fined two PwC firms in China for failing to prevent improper answer sharing on tests, CFO Dive previously reported. In 2022, the Securities and Exchange Commission fined fellow Big Four firm Ernst & Young $100 million for exam cheating.

The settled order also comes as questions over the fate of the PCAOB and how the agency may shift its strategy for enforcement continue to swirl during the first few months of Donald Trump’s second presidential term.

The new administration, which is widely expected to ease the pace of aggressive enforcement actions seen over the past few years by agencies such as the SEC, could potentially defang the PCAOB, an expert previously told CFO Dive.

History may repeat itself, potentially following similar patterns seen during the first Trump administration. A recent report by Cornerstone Research shows a decline in audit actions during the first Trump administration — with audit actions hitting a peak of 43 in 2017 and dropping to 12 in 2021.

“We don't really know all the underlying factors and all the drivers of these trends, but the data shows really almost the inverse…a valley” at the end of the first Trump administration, said Jean-Philippe Poissant, principal and co-head of the accounting practice at Cornerstone Research, together in an interview with Russell Molter, principal at Cornerstone Research.

Molter and Poissant declined to speculate on the factors impacting these trends — with Molter noting the impact of the COVID-19 pandemic and that presidential administrative shifts don’t necessarily correspond with changes in PCAOB leadership.

However, in a comparison between the Biden administration and the first Trump administration, the report found “a sharp increase in the number of total actions and auditing actions over those two periods,” Molter said. 

Finalized enforcement actions by the audit watchdog hit a peak of 51 actions last year, the highest figure since 2017, Cornerstone’s report found. Monetary penalties, meanwhile, also saw a jump; penalties imposed during the Biden administration totaled $67.8 million, according to Cornerstone — more than six times the $10.1 million in penalties levied during the first Trump administration.

It’s difficult to predict if enforcement actions will dip in a similar manner during the second Trump administration, however. As it stands currently, the PCAOB approved its 2025 budget in November, Molter said. The agency has also undertaken several actions already this year, issuing several other sanctions at the top of the month, Poissant pointed out, indicating the agency is still conducting operations.

“We certainly don't have a crystal ball,” Molter said, noting there are “a number of factors that could contribute to changes in enforcement,” as well as continued uncertainty surrounding how the PCAOB could operate in the future, such as possibly being folded into the SEC.

The PCAOB declined to comment beyond its press release.