Key Takeaways

  • The Public Company Accounting Oversight Board (PCAOB) announced a settled disciplinary order on Tuesday sanctioning Kesselman & Kesselman C.P.A.s, a Big Four member firm known as PwC Israel, for quality control violations related to "widespread improper answer sharing."
  • The PCAOB noted that "from 2017 through 2022, the firm failed to detect or prevent widespread improper answer sharing on mandatory internal training course exams." Although PwC Israel's code of conduct "required firm personnel to generally act with integrity," it "did not explicitly prohibit sharing answers on training exams," the PCAOB said in a report on the settled order Tuesday.
  • PwC Israel agreed to pay a $2.75 million civil penalty without admitting or denying the findings, and committed to "reviewing and improving" its quality control policies and procedures. A PwC Israel spokesperson said in an email to CFO Dive: "This order is not a criticism or rebuke of any of our client deliverables or audit work. However, when we fall short of the high standards we set for ourselves, even outside of specific client work, we take action to learn and do better."

Dive Deeper

The issue was first identified in 2022, and the Tel Aviv-based firm notified the PCAOB immediately upon discovery and commissioned an external law firm to investigate, the spokesperson said.

The sanction is the latest action by U.S. regulators against Big Four firms over quality control standards. In 2023, the PCAOB fined two PwC firms in China for failing to prevent improper answer sharing on exams, as CFO Dive previously reported. In 2022, the Securities and Exchange Commission fined fellow Big Four firm Ernst & Young $100 million over exam cheating issues.

The settled order comes during the initial months of Donald Trump's second presidential term, amid ongoing questions about the PCAOB's future and how the agency might adjust its enforcement strategy.

The new administration is widely expected to slow the pace of aggressive enforcement actions taken by agencies like the SEC in recent years, with experts previously telling CFO Dive that the new administration could "weaken" the PCAOB's enforcement capabilities.

History may repeat itself, or follow a similar pattern seen during the first Trump administration. A recent report from Cornerstone Research shows that audit enforcement actions decreased during the first Trump administration—audit actions peaked at 43 in 2017 and fell to 12 by 2021.

"We don't really know all the underlying factors and drivers behind these trends, but the data shows that by the end of the first Trump administration, it was almost the opposite trend... a trough," said Jean-Philippe Poissant, accounting practice leader and co-head at Cornerstone Research, in an interview with Russell Molter, a Cornerstone Research principal.

Molter and Poissant declined to speculate on the factors influencing these trends—Molter noted the impact of the COVID-19 pandemic, and that presidential transitions do not necessarily correspond with PCAOB leadership changes.

However, in a comparison between the Biden administration and the first Trump administration, the report found "a dramatic increase in the number of total actions and audit actions during both periods," Molter said.

The audit regulator's final enforcement actions peaked at 51 last year, the highest number since 2017, the Cornerstone report found. Meanwhile, monetary penalties also surged; according to Cornerstone, the total fines imposed during the Biden administration were $67.8 million, more than six times the $10.1 million in fines imposed during the first Trump administration.

However, it is difficult to predict whether enforcement actions will decline similarly during the second Trump administration. Molter said that, for now, the PCAOB approved its 2025 budget in November. Poissant noted that the agency has already taken several actions this year, issuing multiple other sanctions earlier this month, indicating the agency is still conducting business.

"We certainly don't have a crystal ball," Molter said, noting "there are many factors that could lead to changes in enforcement," as well as ongoing uncertainty about how the PCAOB might operate in the future, such as a potential merger into the SEC.

The PCAOB declined to comment beyond its press release.