$4 Billion Accounting Scandal Puts More Scrutiny on PwC’s Auditing Record

Brazilian retailer Americanas SA has filed for bankruptcy protection after a $4 billion accounting scandal came to light. The company's financial statements, audited by PricewaterhouseCoopers (PwC) since 2019, contained balance-sheet irregularities that were not reflected correctly, including supplier financing. In response, consumer and investor groups, such as Abradecont, Ibrasg and Abradin, have called for greater scrutiny of PwC's auditing record. Abradecont and Ibrasg have even filed lawsuits against the firm, with the former requesting a freeze on PwC's assets.

Luciana Dias, a professor at Brazilian think tank FGV and former director of the Brazilian securities regulator (CVM), believes the key to understanding PwC's exposure will be determining whether the irregularities could have been spotted. Dias said, “If there’s a lack of controls or problems with the accounting policy, auditors do have some responsibility, but it’s hard to detect a fraud that’s committed with some coordination from the company.”

If the lawsuits are successful, they could significantly damage PwC's Brazil business, which operates independently from the global firm. The impact of the lawsuits on PwC could be severe, as the outcome of these lawsuits could potentially damage the company's business in Brazil. The global network of PwC may not be willing to bail out the South American affiliate, which operates independently. If successful, the lawsuits could lead to devastating financial consequences for PwC Brazil, according to Jim Peterson, a former in-house attorney for Arthur Andersen, another accounting firm that had faced legal challenges and eventually collapsed following scandals with clients WorldCom and Enron.

Following the discovery of the $4 billion accounting shortfall at Brazilian retailer Americanas, consumer and investor groups are calling for increased scrutiny of the auditing practices of PricewaterhouseCoopers (PwC). Americanas, which recently sought protection from creditors due to balance sheet irregularities, has had its financial statements audited by PwC since 2019.

In response to the scandal, consumer advocacy group Abradecont and corporate activism association Ibrasg have both filed lawsuits against PwC in the past few days, with the former seeking to freeze the auditor's assets. The investor association Abradin is also requesting the local securities regulator CVM to examine PwC's responsibilities in the case.

As for the outcome of these lawsuits, if they are successful, it could significantly impact PwC's business in Brazil. Jim Peterson, a former in-house attorney for Arthur Andersen, commented that PwC's global network may not be willing to support its South American affiliate in the event of a financial loss.

The blame for the accounting scandal has also been placed on Americanas' management and its three key shareholders, billionaires Jorge Paulo Lemann, Marcel Telles, and Carlos Alberto Sicupira, who have denied any involvement and claimed that neither the company's bankers nor PwC reported any irregularities.

PwC's auditing practices have been under fire globally in recent years, with recent settlements in the UK and ongoing investigations into its audit work for China Evergrande Group. The firm was also acquitted in a previous lawsuit regarding its auditing practices for Petrobras, which was at the center of a money-laundering and kickback scandal.

An independent committee, advised by law firm Maeda, Ayres & Sarubbi and EY and led by former CVM director Otavio Yazbek, is currently reviewing the inconsistencies in Americanas' financial statements to determine if there were any errors.