PCAOB Fines PwC Greece $3 Million and Bars and Fines Engagement Partner for Audit Violations

The Public Company Accounting Oversight Board (PCAOB) today announced settled disciplinary orders sanctioning Greece-based PricewaterhouseCoopers Auditing Company SA (“PwC Greece” or the “firm”) and its partner Nicos George Komodromos (“Komodromos”) for violations of PCAOB rules and standards in connection with the audit of the 2016 financial statements of Aegean Marine Petroleum Network Inc. (“Aegean” or “the Company”).

The PCAOB found that Komodromos and the PwC Greece engagement team failed to respond with due professional care and appropriate professional skepticism to inconsistent audit evidence they uncovered about four of Aegean’s customers, from which 13% of Aegean’s reported revenue arose in 2016.

“To protect investors, the Board will hold both firms and engagement partners accountable when they fail to respond appropriately to significant risks,” said PCAOB Chair Erica Y. Williams.

Awareness of Fraud Risks at Aegean

Both Komodromos and PwC Greece understood that an executive at Aegean with significant control over the company had previously been criminally convicted for fuel smuggling involving “virtual invoicing” and been accused of a variety of other criminal activity. Because of concerns about the integrity and ethics of management, Komodromos and the engagement team assessed a significant risk of material misstatement due to fraud.

Failing to Respond to Inconsistent Audit Evidence

Komodromos and the engagement team disregarded and did not resolve inconsistencies from certain contradictory audit evidence about the unusual transactions with the four customers, despite the heightened risks of fraud at Aegean and the engagement team’s initial concerns about the transactions. This contradictory evidence should have been viewed as red flags that raised substantial doubt about management’s assertions in Aegean’s financial statements related to the four customers’ transactions and balances.

For example, the firm engagement team encountered substantial difficulties obtaining street addresses for the four customers from Aegean to use in the firm’s accounts receivable confirmations to those customers. When the engagement team finally received the street addresses, the team requested that an affiliated PwC network firm visit the customers at those addresses to verify their existence. When the PwC network firm visited the first three addresses, it found that one address did not exist and two were residential apartment buildings with no businesses located there. Although the affiliate found no evidence that the customers were located at the addresses, Komodromos and the engagement team failed to respond appropriately to that and other contradictory audit evidence – or even document the attempted site visits in the workpapers. Instead, Komodromos instructed the team to cancel the remaining site visit and relied on other inadequate audit evidence to issue an audit report containing unqualified opinion.

In 2018, Aegean publicly disclosed that its audit committee and board of directors had concluded that the transactions with the four customers lacked economic substance, as the relevant customers were shell companies with no material assets or operations and were owned or controlled by former employees or affiliates of the Company.

“This order underscores the critical need for auditors to exercise due professional care and professional skepticism, especially when confronting inconsistent audit evidence and heightened risks,” said Robert E. Rice, Director of the PCAOB’s Division of Enforcement and Investigations.

Without admitting or denying the Board’s findings, PwC Greece and Komodromos each consented to the PCAOB’s respective order against them. The PwC Greece order censures the firm, imposes a $3 million civil money penalty on the firm, and requires the firm to complete remedial undertakings. Those remedial undertakings require the following:

1. The firm’s associated persons involved in PCAOB audits will complete additional hours of professional training related to certain PCAOB standards.
2. For the next two years, the firm will obtain pre-issuance reviews by a third party for each issuer audit in which the firm prepares or issues an audit report or plays a substantial role in the preparation or issuance of an audit.

The Komodromos order censures him, imposes an $80,000 civil money penalty on him, and bars him from being an associated person of a registered public accounting firm for two years.

PCAOB enforcement staff members Joshua M. Cutler, Tina Bell, R. Davis Taylor, Michael Plotnick, and Dave Eccard conducted the investigation. William Ryan and John Abell supervised this matter.

The PCAOB oversees auditors’ compliance with the Sarbanes-Oxley Act, provisions of the securities laws relating to auditing, professional standards, and PCAOB and SEC rules. Further information about the PCAOB Division of Enforcement and Investigations is available on the PCAOB website.

Firms or individuals wishing to report suspected misconduct by auditors, or to self-report possible misconduct, may visit the PCAOB Tips and Referrals page.

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About the PCAOB

The PCAOB is a nonprofit corporation established by Congress to oversee the audits of public companies in order to protect investors and further the public interest in the preparation of informative, accurate, and independent audit reports. The PCAOB also oversees the audits of brokers and dealers registered with the Securities and Exchange Commission, including compliance reports filed pursuant to federal securities laws.

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