Report on Inspection of PricewaterhouseCoopers LLP (Headquartered in New York, New York) Public Company Accounting Oversight Board

Transcription

1 1666 K Street, N.W. Washingtn, DC Telephne: (202) Facsimile: (202) Reprt n 2012 Inspectin f PricewaterhuseCpers LLP (Headquartered in New Yrk, New Yrk) Issued by the Public Cmpany Accunting Oversight Bard THIS IS A PUBLIC VERSION OF A PCAOB INSPECTION REPORT PORTIONS OF THE COMPLETE REPORT ARE OMITTED FROM THIS DOCUMENT IN ORDER TO COMPLY WITH SECTIONS 104(g)(2) AND 105(b)(5)(A) OF THE SARBANES-OXLEY ACT OF 2002 PCAOB RELEASE NO

2 PCAOB Release N INSPECTION OF PRICEWATERHOUSECOOPERS LLP Preface In 2012, the Public Cmpany Accunting Oversight Bard ("PCAOB" r "the Bard") cnducted an inspectin f the registered public accunting firm PricewaterhuseCpers LLP ("the Firm") pursuant t the Sarbanes-Oxley Act f 2002 ("the Act"). 1/ The inspectin prcess is designed, and inspectins are perfrmed, t prvide a basis fr assessing the degree f cmpliance by a firm with applicable requirements related t auditing issuers. The inspectin prcess included reviews f aspects f selected issuer audits cmpleted by the Firm. The reviews were intended t identify whether deficiencies existed in thse aspects f the audits, and whether such deficiencies indicated defects in the Firm's system f quality cntrl ver audits. In additin, the inspectin included reviews f plicies and prcedures related t certain quality cntrl prcesses f the Firm that culd be expected t affect audit quality. The issuer audits and aspects f thse audits inspected were selected based n a number f risk-related and ther factrs. Due t the selectin prcess, the deficiencies included in this reprt are nt necessarily representative f the Firm's issuer audit practice. The Bard is issuing this reprt in accrdance with the requirements f the Act. 2/ The Bard is releasing t the public Part I f the reprt and prtins f Appendix C. Appendix C includes the Firm's cmments, if any, n a draft f the reprt. Any defects in, r criticisms f, the Firm's quality cntrl system are discussed in the nnpublic prtin f this reprt and will remain nnpublic unless the Firm fails t address them t the Bard's satisfactin within 12 mnths f the date f this reprt. 1/ The Act requires the Bard t cnduct an annual inspectin f each registered public accunting firm that regularly prvides audit reprts fr mre than 100 issuers. 2/ In its Statement Cncerning the Issuance f Inspectin Reprts, PCAOB Release N (August 26, 2004), the Bard described its apprach t making inspectin-related infrmatin publicly available cnsistent with legal restrictins.

3 PCAOB Release N Inspectin f PricewaterhuseCpers LLP Page 2 PART I INSPECTION PROCEDURES AND CERTAIN OBSERVATIONS Members f the Bard's staff ("the inspectin team") cnducted primary prcedures fr the inspectin frm Nvember 2011 t February The inspectin team perfrmed field wrk at the Firm's Natinal Office and at 29 f its apprximately 66 U.S. practice ffices. A. Review f Audit Engagements The 2012 inspectin f the Firm included reviews f aspects f 52 audits perfrmed by the Firm and reviews f the Firm's audit wrk n tw ther issuer audit engagements in which the Firm played a rle but was nt the principal auditr. The inspectin team identified matters that it cnsidered t be deficiencies in the perfrmance f the wrk it reviewed. One f the deficiencies relates t auditing aspects f an issuer's financial statements that the issuer restated after the primary inspectin prcedures. 3/ In additin, fr ne f the audits described belw, the Firm revised its pinin n the effectiveness f the issuer's internal cntrl ver financial reprting ("ICFR") t express an adverse pinin. The inspectin team cnsidered certain f the deficiencies that it bserved t be audit failures. As used in PCAOB inspectin reprts, the term "audit failure" refers t a circumstance where the inspectin team identified ne r mre deficiencies in an audit that were f such significance that it appeared that the Firm, at the time it issued its audit reprt, had failed t btain sufficient apprpriate audit evidence t supprt its audit 3/ The Bard's inspectin prcess did nt include review f any additinal audit wrk related t the restatement.

4 PCAOB Release N Inspectin f PricewaterhuseCpers LLP Page 3 pinin n the financial statements and/r n the effectiveness f ICFR. The audit deficiencies that reached this level f significance are described belw. 4/ A.1. Issuer A In this audit, the Firm failed in the fllwing respects t btain sufficient apprpriate audit evidence t supprt its audit pinins n the financial statements and n the effectiveness f ICFR The Firm's prcedures related t revenue and deferred revenue were insufficient. Specifically The issuer's prcess fr recrding revenue transactins and deferred revenue invlved several infrmatin technlgy systems and multiple transfers f data between these varius systems. The Firm failed t identify and test any cntrls ver the accuracy and cmpleteness f several f these data transfers. In additin, the Firm tested a cntrl cnsisting f the review f data transferred between tw f these systems, but the Firm's prcedures were insufficient, as it limited its testing t determining that the review had ccurred, withut evaluating whether the cntrl perated at a level f precisin that wuld prevent r detect material misstatements. The Firm cncluded that certain system-generated reprts used in the peratin f cntrls were accurate and cmplete based n testing perfrmed in a prir year's audit ("benchmarking"). The Firm, hwever, failed t btain assurance that the relevant underlying prgrams f tw applicatins and the parameters used t generate the relevant reprts had nt changed since the reprts 4/ The discussin in this reprt f any deficiency bserved in a particular audit reflects infrmatin reprted t the Bard by the inspectin team and des nt reflect any determinatin by the Bard as t whether the Firm has engaged in any cnduct fr which it culd be sanctined thrugh the Bard's disciplinary prcess. In additin, any references in this reprt t vilatins r ptential vilatins f law, rules, r prfessinal standards are nt a result f an adversarial adjudicative prcess and d nt cnstitute cnclusive findings fr purpses f impsing legal liability.

5 PCAOB Release N Inspectin f PricewaterhuseCpers LLP Page 4 generated by thse systems had last been tested, as the Firm's prcedures t test access t prgrams and prgram changes were insufficient. Specifically, the Firm failed t determine whether users culd make unauthrized changes t the revenue recgnitin rules r rates within ne f the applicatins and failed t evaluate certain prgram changes made t bth applicatins. The Firm's planned apprach fr auditing revenue included perfrming substantive analytical prcedures, testing revenue cutff, and recalculating deferred revenue. The Firm failed t test the accuracy and cmpleteness f certain data and reprts it used in each f these tests. The Firm's prcedures related t the issuer's current and deferred incme taxes were insufficient. Specifically The Firm selected fr testing certain review cntrls ver the current and deferred incme taxes; hwever, it failed t sufficiently test these cntrls. Specifically, the Firm's prcedures were limited t btaining evidence that such reviews had ccurred, cmparing infrmatin used in the cntrls t supprting dcumentatin r data, and inquiring f management. The Firm's prcedures did nt include evaluating whether the cntrls perated at a level f precisin that wuld prevent r detect material misstatements. The issuer asserted that earnings frm freign subsidiaries were permanently reinvested utside f the U.S., and it did nt recrd a deferred tax liability fr such earnings. The Firm failed t identify and test any cntrls regarding the issuer's determinatin that the earnings were permanently reinvested. The issuer claimed certain tax benefits that were dependent upn the issuer meeting certain criteria. The Firm failed t identify and test any cntrls ver the issuer's determinatin that it qualified fr these tax incentives. In additin, the Firm failed t test the accuracy and cmpleteness f the data the Firm used in its testing t determine whether the issuer was meeting the criteria t qualify fr the tax incentives.

6 PCAOB Release N Inspectin f PricewaterhuseCpers LLP Page 5 A.2. The issuer acquired a business during the year and disclsed that the allcatin f the purchase price t the assets acquired was preliminary as f its year end. The Firm's prcedures t evaluate the reasnableness f the frecasts the issuer used t determine the preliminary values f acquired intangible assets ("valuatin frecasts") were insufficient. Specifically, the Firm's prcedures included cmparing the valuatin frecasts t the frecasts the issuer used in its annual gdwill impairment test; the Firm, hwever, failed t evaluate significant differences between the tw frecasts, beynd inquiring f management. Further, the Firm failed t cnsider whether the significant differences between the actual results fr the year under audit and the prjected results fr that year that were included in the valuatin frecasts had implicatins related t the reasnableness f the valuatin frecasts. The Firm selected fr testing certain review cntrls ver the accunting fr business cmbinatins; hwever, it failed t sufficiently test these cntrls. Specifically, the Firm's prcedures were limited t btaining evidence that such reviews had ccurred, cmparing infrmatin in certain dcuments used in the peratin f the cntrls t supprting dcuments, and reading memranda and ther dcuments prepared as a part f the cntrls. In additin, the Firm referenced its substantive testing when addressing its evaluatin f the effectiveness f these cntrls; hwever, the Firm failed t test, thrugh any f its prcedures, whether the cntrls perated at a level f precisin that wuld prevent r detect material misstatements related t the accunting fr business cmbinatins. Issuer B In this audit, the Firm failed in the fllwing respects t btain sufficient apprpriate audit evidence t supprt its audit pinins n the financial statements and n the effectiveness f ICFR The Firm failed t identify and test any cntrls ver the cmpleteness f a significant type f sales incentive recrded as a reductin f revenue. In additin, fr a significant subset f these incentives, the Firm failed t identify and test any cntrls ver the timing f the recgnitin, and in sme cases the amunt, f the sales incentives.

7 PCAOB Release N Inspectin f PricewaterhuseCpers LLP Page 6 The Firm's prcedures t test the issuer's cntrls ver accunting fr incme taxes were insufficient. Specifically The Firm's prcedures t test certain review cntrls were limited t btaining evidence that the reviews had ccurred and testing the mathematical accuracy f certain supprting dcuments, withut evaluating whether the cntrls perated at a level f precisin that wuld prevent r detect material misstatements. The issuer asserted that earnings frm certain f its freign subsidiaries were permanently reinvested utside f the U.S. and therefre did nt include thse earnings in its calculatin f its deferred tax liabilities. There was n evidence in the audit dcumentatin, and n persuasive ther evidence, that the Firm had tested any cntrls ver the issuer's evaluatin f evidence that supprted this assertin. The issuer established a tax structure designed t allw fr the repatriatin f cash frm certain f its freign subsidiaries t ccur n a tax-free basis. The Firm, hwever, failed t perfrm sufficient prcedures t evaluate the issuer's assertin that cash it repatriated under this structure during the year was nt subject t U.S. taxes. Specifically, the Firm limited its prcedures t inquiring f management and reading a memrandum prepared by management. Further, it failed t examine any f the agreements assciated with, r test the cmpleteness f, the repatriatins. The Firm failed t perfrm sufficient substantive prcedures related t the issuer's prvisin fr incme taxes and its reserve fr uncertain tax psitins. Specifically, the Firm selected fr testing certain items that the issuer recrded in its prvisin fr incme taxes and its liability fr uncertain tax psitins, but the Firm failed t perfrm sufficient prcedures t test these items. Specifically, fr certain f these items, the Firm failed t (a) test the accuracy and cmpleteness f the underlying data the issuer used t develp the amunt recrded, (b) evaluate the reasnableness f the significant assumptins used t develp the amunt recrded, and/r (c) btain crrbratin f management's

8 PCAOB Release N Inspectin f PricewaterhuseCpers LLP Page 7 explanatin as t why there had been n change in the amunt recrded fr the uncertain tax psitin since the prir year. A.3. Issuer C In this audit, the Firm failed t btain sufficient apprpriate audit evidence t supprt its audit pinin n the financial statements. Specifically T test the value f certain available-fr-sale securities ("mrtgage-backed securities"), the Firm sught t btain prices frm utside pricing vendrs. The Firm received such prices fr nly a small number f the mrtgagebacked securities. Fr the remainder, the Firm btained certain data related t the mrtgage-backed securities, and determined that it expected the value f the majrity f the mrtgage-backed securities t fall within a specified range. The Firm tested the value f a small number f the mrtgage-backed securities that fell utside this range, as well as three ther mrtgage-backed securities that met certain cllateral-perfrmance criteria. The Firm used the results f this testing t cnclude n the entire ppulatin f mrtgage-backed securities fr which n price was btained frm an utside pricing vendr. The Firm's testing apprach fr the mrtgage-backed securities was insufficient. Specifically The Firm develped its expected range f values fr the mrtgagebacked securities withut crrelating the data t the range. The Firm failed t perfrm sufficient prcedures with respect t the values f mrtgage-backed securities utside f its expected range f values. Specifically, the Firm's selectin f mrtgage-backed securities that fell utside its expected range was nt designed t be representative f that ppulatin f mrtgage-backed securities, and the Firm failed t perfrm prcedures t test a significant number f the mrtgage-backed securities that fell utside this range. T test the value f anther type f available-fr-sale debt securities ("private placements"), the Firm develped an independent estimate based n the unadjusted prices fr publicly traded bnds that were

9 PCAOB Release N Inspectin f PricewaterhuseCpers LLP Page 8 purprtedly cmparable based n the issuer, ratings, cupn rates, and maturities. The Firm's testing apprach fr the private placements was deficient. Specifically The Firm failed t perfrm sufficient prcedures t evaluate whether the private placements were cmparable t the publicly traded bnds, as it did nt cnsider whether the private placements had features that were different frm the publicly traded bnds. The Firm established a range f reasnable prices fr each private placement, using the minimum and maximum prices f publicly traded bnds that it deemed t be cmparable. In sme cases, this range was nt sufficiently precise fr determining the reasnableness f the private placements' values and the Firm did nt perfrm additinal prcedures t identify expected prices fr thse private placements. Fr certain private placements that fell utside f the range, the Firm cmpared the issuer's price t a price prvided by an external party. There was n evidence in the audit dcumentatin, and n persuasive ther evidence, hwever, that the Firm had btained an understanding f the specific methds and assumptins underlying the fair value measurements that it btained frm the external party. T test the fair value f certain derivatives, the Firm develped independent estimates and cmpared thse estimates t the recrded fair values. This testing was deficient in the fllwing respects The Firm established threshlds fr investigatin f differences, but thse threshlds were nt designed s that they wuld reasnably be expected t detect material misstatements in the recrded derivatives balance. The Firm failed t sufficiently evaluate the differences fr individual derivatives that were in excess f its threshlds. Specifically, the Firm's analyses f certain f these differences were limited t general bservatins abut certain characteristics f the derivatives.

10 PCAOB Release N Inspectin f PricewaterhuseCpers LLP Page 9 A.4. Issuer D In this audit, the Firm failed in the fllwing respects t btain sufficient apprpriate audit evidence t supprt its audit pinins n the financial statements and n the effectiveness f ICFR The Firm failed t sufficiently test cntrls ver the valuatin f fixedmaturity investment securities. Specifically, the majrity f the cntrls the Firm tested used data and reprts that were subject t autmated applicatin cntrls. The Firm planned t use a benchmarking strategy t test these autmated applicatin cntrls, but it failed t apprpriately execute that strategy, as its prcedures t verify that the autmated applicatin cntrls had nt changed since they were last tested were limited t inquiries f management. In additin, ther cntrls that the Firm tested ver the valuatin f investment securities used data and reprts that were nt subject t the autmated applicatin cntrls, and the Firm failed t identify and test any cntrls ver these data and reprts. The Firm's testing f the valuatin f tw categries f financial instruments, which represented a significant prtin f the issuer's prtfli, was insufficient. Specifically, the Firm's primary prcedures were t test the fair value f individual financial instruments that met certain criteria, as well as an additinal three t five financial instruments frm each categry, but these prcedures were nt designed t enable the Firm t supprt a cnclusin n the valuatin f the remaining financial instruments in thse categries. The Firm perfrmed n prcedures regarding the remaining ppulatin in ne f the tw categries f financial instruments. Fr the ther categry, the Firm perfrmed certain prcedures related t the remaining ppulatin, but this testing was insufficient as (a) the Firm tested nly inputs t the issuer's valuatin mdel withut evaluating the apprpriateness f the mdel itself, and (b) the Firm's cmparisn f actual sale prices during the year t previusly recrded prices fr certain investments revealed differences ver the Firm's threshld that the Firm investigated nly thrugh inquiry.

11 PCAOB Release N Inspectin f PricewaterhuseCpers LLP Page 10 A.5. Issuer E In this audit, the Firm failed in the fllwing respects t btain sufficient apprpriate audit evidence t supprt its audit pinins n the financial statements and n the effectiveness f ICFR The Firm's prcedures t test the issuer's accunting fr a number f business cmbinatins cmpleted during the year were insufficient. Specifically The Firm failed t test the accuracy and cmpleteness f the acquiree's histrical data used in determining the fair value f a significant prtin f the acquired intangible assets and prperty and equipment. The Firm failed t evaluate the reasnableness f certain significant assumptins used in determining the fair values f the acquired assets, beynd inquiry f management and, fr ne acquisitin, als inquiry f the issuer's specialist. The Firm's prcedures t evaluate ne assumptin, the discunt rate, were limited t inquiry and a cmparisn f the discunt rate used in certain acquisitins t the weighted average cst f capital used in the issuer's prir-year gdwill impairment analysis. A.6. The issuer's prcess fr recgnizing the majrity f revenue frm ne significant custmer was different frm the revenue prcess fr its ther custmers. The Firm failed t identify and test any cntrls ver the ccurrence f revenue frm the significant custmer. Issuer F In this audit, the Firm failed t sufficiently test cntrls ver (a) the issuer's accunting fr business cmbinatins and (b) the dispsitin f businesses and the reprting f discntinued peratins. Specifically, the Firm selected fr testing certain review cntrls that were part f the issuer's perid-end financial reprting prcess, but its testing was limited t btaining evidence that reviews had ccurred, withut

12 PCAOB Release N Inspectin f PricewaterhuseCpers LLP Page 11 evaluating whether the cntrls perated at a level f precisin that wuld prevent r detect material misstatements related t these areas, and withut determining whether these cntrls addressed the accunting requirements fr discntinued peratins. A.7 Issuer G In this audit, the Firm failed t btain sufficient apprpriate audit evidence t supprt its audit pinins n the financial statements and n the effectiveness f ICFR. The issuer calculated the value f its inventry using the retail inventry methd f accunting ("the cst calculatin"). The Firm's testing related t the valuatin f inventry was deficient as fllws A.8. The Firm failed t perfrm sufficient prcedures t test the issuer's markdwns f the retail price f inventry, which were imprtant inputs in the cst calculatin. While the Firm tested a selectin f sales transactins f marked-dwn inventry during the year, the Firm failed t test whether all apprved markdwns were recrded in the issuer's recrds and whether the markdwns recrded at year end were accurate. The Firm selected fr testing a cntrl ver markdwns, but it failed t test the attribute f the cntrl that addressed whether apprved markdwns were entered int the issuer's system. The Firm selected fr testing a review cntrl ver the cst calculatin; hwever, it failed t evaluate whether the cntrl was designed t perate at a level f precisin that wuld prevent r detect material misstatements. Issuer H In this audit, the Firm failed t identify that the issuer had incrrectly calculated the amunt f the gdwill impairment it recrded during the year. The Firm als failed t identify and evaluate, as a ptential material weakness, a cntrl deficiency related t the issuer's gdwill impairment prcess.

13 PCAOB Release N Inspectin f PricewaterhuseCpers LLP Page 12 A.9. Issuer I In this audit, the Firm failed in the fllwing respects t btain sufficient apprpriate audit evidence t supprt its audit pinin n the effectiveness f ICFR The Firm's tests f cntrls ver tw significant categries f revenue were insufficient. Specifically The Firm selected fr testing certain review cntrls ver these categries f revenue; hwever, it failed t sufficiently test these cntrls. Specifically, the Firm's prcedures were limited t btaining evidence that such reviews had ccurred and cnfirming that certain variances were explained, withut evaluating whether the cntrls perated at a level f precisin that wuld prevent r detect material misstatements. The Firm failed t identify and test any cntrls ver the cmpleteness f system-generated reprts the issuer used in the peratin f certain manual cntrls ver ne f these categries f revenue. The Firm's tests f cntrls ver the accunting fr prperty, plant, and equipment were insufficient. Specifically The Firm failed t sufficiently test certain review cntrls that it selected. Specifically, fr ne cntrl, the Firm's prcedures were limited t btaining evidence that the review had ccurred, withut evaluating whether the cntrl perated at a level f precisin that wuld prevent r detect material misstatements. Fr anther cntrl, the Firm used the results f its substantive prcedures t update its cntrl testing frm the date f its interim testing t the year end, but thse prcedures did nt directly test the cntrl. Fr a prtin f the year, management used an external party t perfrm certain cntrls. During the year, the issuer terminated the agreement with the external party and began t perfrm certain f these cntrls n its wn.

14 PCAOB Release N Inspectin f PricewaterhuseCpers LLP Page 13 A.10. Issuer J The Firm failed t sufficiently test tw f these cntrls after the terminatin f the agreement. Specifically, fr ne cntrl, the Firm limited its prcedures t inquiry f the issuer's internal audit grup. Fr a secnd cntrl, the Firm stated that its substantive prcedures prvided evidence f the effectiveness f the cntrl after the terminatin f the agreement, but thse prcedures did nt directly test the cntrl, ther than by cnfirming that certain actins that cnstituted a part f the cntrl had ccurred. The Firm failed t identify and test any cntrls perating after the terminatin f the agreement that addressed the reasnableness f the rates the issuer used t capitalize certain indirect csts t prperty, plant, and equipment. In this audit, the Firm failed in the fllwing respects t btain sufficient apprpriate audit evidence t supprt its audit pinins n the financial statements and n the effectiveness f ICFR The Firm perfrmed a dual-purpse test f the issuer's physical inventry cycle cunts at a sample f warehuses cntrlled by external parties. The Firm's prcedures were insufficient, as it (a) failed t identify and test any cntrls ver the reprts used by the external parties and the issuer as part f the cycle-cunt cntrl, and (b) limited its testing f daily cycle cunts t bserving nly ne cycle cunt at each f tw lcatins. The Firm bserved full physical inventry cunts at a sample f the issuer's retail lcatins, but failed t test cntrls ver the recrding f the results f the cunts in the inventry sub-ledger. Further, the Firm identified differences between its cunts and the issuer's cunts at certain lcatins, but failed t (a) btain an understanding f the reasns fr the differences, (b) btain further evidence t cnclude n the existence and cmpleteness f the inventry, and (c) evaluate whether the cunt differences indicated a cntrl deficiency.

15 PCAOB Release N Inspectin f PricewaterhuseCpers LLP Page 14 The Firm selected fr testing three review cntrls ver the issuer's accunting fr its in-transit inventry, but its tests f these cntrls were insufficient. Specifically, fr ne f the cntrls, the Firm's testing was limited t btaining evidence that the reprts used in the perfrmance f the cntrl were prepared and distributed, withut testing whether the reprts had been reviewed pursuant t the cntrl's requirements. Fr the ther tw cntrls, the Firm's testing was limited t btaining evidence that reviews had ccurred. Fr all three cntrls, the Firm's prcedures did nt include determining the nature f the reviews and evaluating whether the cntrls perated at a level f precisin that wuld prevent r detect material misstatements. The Firm used the wrk f the issuer's internal audit grup as evidence f the valuatin, existence, and cmpleteness f a significant cmpnent f the issuer's in-transit inventry, but it failed t btain an understanding f the nature, timing, and extent f the prcedures perfrmed by internal audit and failed t test internal audit's wrk. A.11. Issuer K In this audit, the Firm failed in the fllwing respects t btain sufficient apprpriate audit evidence t supprt its audit pinins n the financial statements and n the effectiveness f ICFR Fr certain f the issuer's lcatins that in the aggregate presented a reasnable pssibility f material misstatement, the Firm failed t perfrm substantive prcedures t test revenue, accunts receivable, and inventry. The issuer calculated its liability fr the standard warranty that it ffered fr each prduct ("base warranty reserves") using a separate spreadsheet fr each prduct. The Firm failed t sufficiently test the issuer's base warranty reserves and the related cntrls. Specifically The Firm selected fr testing certain review cntrls ver the determinatin f the base warranty reserves. The Firm, hwever, failed t sufficiently test these cntrls, because its prcedures

16 PCAOB Release N Inspectin f PricewaterhuseCpers LLP Page 15 were limited t btaining evidence that such reviews had ccurred and determining that certain variances were investigated, withut evaluating whether the cntrls perated at a level f precisin that wuld prevent r detect material misstatements related t the base warranty reserves. The Firm failed t evaluate the reasnableness f significant assumptins management used t determine the base warranty reserves. The Firm failed t test the cmpleteness f the data the issuer used t develp its base warranty reserves. The Firm failed t sufficiently test the frmulas in the spreadsheets used t calculate the base warranty reserves, as it limited its testing t recalculating the base warranty reserve fr nly ne prduct, even thugh the issuer used multiple manually prepared spreadsheets. The Firm failed t perfrm sufficient testing f deferred revenue related t extended warranty cntracts and f the reserve fr lss cntracts related t extended warranties. Specifically The Firm selected fr testing certain review cntrls ver the accunting fr extended warranty cntracts, but its testing f these cntrls was insufficient. Specifically, the Firm limited its prcedures t btaining evidence that such reviews had ccurred and inquiring f management, withut evaluating whether the cntrls perated at a level f precisin that wuld prevent r detect material misstatements related t extended warranty cntracts. The Firm failed t perfrm sufficient substantive prcedures t test deferred revenue frm extended warranty cntracts. Specifically, the Firm tested deferred revenue at an interim date, but it failed t perfrm prcedures t extend its cnclusins t the year end. Further, the Firm failed t perfrm prcedures t test the reserve fr lss cntracts.

17 PCAOB Release N Inspectin f PricewaterhuseCpers LLP Page 16 A.12. Issuer L In this audit, the Firm failed in the fllwing respects t btain sufficient apprpriate audit evidence t supprt its audit pinins n the financial statements and n the effectiveness f ICFR The Firm's substantive testing f the issuer's investment securities was insufficient, because the Firm cnfirmed the existence f these securities with the issuer's investment manager, but nt with the custdian. In additin, the Firm failed t identify and test any cntrls ver the existence f the investment securities. The Firm selected fr testing tw review cntrls ver the issuer's determinatin f its liability fr uncertain tax psitins, but its testing f these cntrls was insufficient. Specifically, the Firm failed t evaluate whether the cntrls perated at a level f precisin that wuld prevent r detect material misstatements, as the Firm's testing was limited t bserving evidence that the reviews had ccurred. The Firm failed t perfrm sufficient prcedures related t the issuer's accunting fr freign incme taxes. Specifically The Firm failed t sufficiently test cntrls ver the issuer's accunting fr freign incme taxes. Specifically, the Firm's prcedures were limited t (a) bserving evidence that the reviews r activities that cnstituted a part f the peratin f the cntrl had ccurred, and (b) in sme instances, cmparing certain dcuments used in the cntrl t supprting dcumentatin. The Firm's prcedures t test these cntrls did nt include evaluating whether the cntrls perated at a level f precisin that wuld prevent r detect material misstatements. The Firm failed t perfrm sufficient prcedures t test the cmpnents f the prvisin fr freign incme taxes. Fr the issuer's freign lcatins that the Firm selected fr testing, the Firm (a) recalculated the incme tax expense fr each lcatin (based n pre-tax incme and the applicable statutry rate) and cmpared

18 PCAOB Release N Inspectin f PricewaterhuseCpers LLP Page 17 the recalculated amunt t the recrded amunt, and (b) tested certain tax payments and refunds. When cmparing the recalculated amunt t the recrded amunt, the Firm did nt investigate certain significant differences, and did nt btain crrbratin f management's explanatins f ther significant differences. Further, the Firm failed t test the cmpleteness f the freign deferred tax assets and liabilities. The Firm identified audit adjustments related t the issuer's incme taxes, as well as an unsupprted liability fr an uncertain tax psitin, but the Firm failed t evaluate whether the adjustments and the unsupprted liability were, either individually r in the aggregate, indicatrs f ptential material weaknesses in the issuer's internal cntrl. A.13. Issuer M In this audit, the Firm failed in the fllwing respects t btain sufficient apprpriate audit evidence t supprt its audit pinin n the effectiveness f ICFR The Firm selected a cntrl fr testing that cnsisted f the invlvement f the issuer's executives in reviewing nn-standard transactins. The Firm asserted that this cntrl cvered the accunting fr business cmbinatins and, fr tw f the issuer's significant business units, the review f custmer cntracts fr the evaluatin f unusual terms and cnditins related t the accunting fr revenue. The Firm's testing f this cntrl was insufficient, as it limited its testing t inquiring f management. In additin, the Firm referenced its substantive testing when addressing its evaluatin f the effectiveness f this cntrl with respect t the accunting fr business cmbinatins. The Firm, hwever, failed t test, thrugh any f its prcedures, whether the cntrl perated at a level f precisin that wuld prevent r detect material misstatements related t these areas. The Firm's testing f ther cntrls ver ne f the significant categries f revenue fr ne f these business units was als insufficient. Specifically, the Firm failed t test any cntrls ver the accuracy and cmpleteness f system-generated data and reprts that the issuer used

19 PCAOB Release N Inspectin f PricewaterhuseCpers LLP Page 18 in the perfrmance f certain f these cntrls. In additin, fr certain review cntrls ver this revenue, the Firm's testing was limited t btaining evidence that such reviews had ccurred, withut evaluating whether the cntrls perated at a level f precisin that wuld prevent r detect material misstatements. A.14. Issuer N In this audit, the Firm failed in the fllwing respects t btain sufficient apprpriate audit evidence t supprt its audit pinins n the financial statements and n the effectiveness f ICFR During the year, the issuer cmpleted the acquisitin f a significant business. The Firm's testing related t the accunting fr business cmbinatins was deficient in the fllwing respects The Firm failed t sufficiently test a cntrl cnsisting f the review f the issuer's accunting research memranda and related jurnal entries, which was a perid-end financial reprting prcess cntrl that the Firm identified as addressing the risks assciated with the accunting fr business cmbinatins. Specifically, the Firm's prcedures were limited t determining that a review had ccurred. In additin, the Firm referenced its substantive testing when addressing its evaluatin f the effectiveness f this cntrl. The Firm, hwever, failed t test, thrugh any f its prcedures, whether the cntrl perated at a level f precisin that wuld prevent r detect material misstatements related t business cmbinatins. The issuer used tw external valuatin specialists t determine the fair value f the acquired prperty and equipment. The Firm failed t test certain underlying data used by ne f the valuatin specialists. In additin, the Firm failed t evaluate the apprpriateness f the methdlgy and the reasnableness f the assumptins the ther specialist used. Befre the business cmbinatin, the issuer had wned an interest in the acquired entity that it accunted fr under the equity methd. In accunting fr the business cmbinatin, the issuer adjusted the

20 PCAOB Release N Inspectin f PricewaterhuseCpers LLP Page 19 recrded value f this interest t fair value. When testing the fair value, the Firm failed t take int accunt the wrk f the issuer's external valuatin specialists, which suggested different fair values frm thse recrded by the issuer. The Firm's prcedures related t the issuer's accunting fr incme taxes were insufficient. Specifically The Firm's testing f the issuer's cntrl related t uncertain tax psitins was insufficient, as the Firm failed t evaluate whether this cntrl perated at a level f precisin that wuld prevent r detect material misstatements. The Firm's prcedures t substantively test certain liabilities fr uncertain tax psitins were insufficient. Specifically A.15. Issuer O Fr certain f these psitins, the Firm failed t evaluate the reasnableness f the percentages that management applied t the individual psitins t determine the liability. Fr certain ther psitins, the Firm limited its testing t verifying that the amunts were the same as thse recrded in the prir year, withut evaluating the reasnableness f assumptins that management used t determine the liability, including the assumptin that the amunts shuld be the same as thse in the prir year. Fr anther psitin, the Firm failed t test the issuer's recrding f a significant reductin in the liability fr the psitin. In this audit, the Firm failed in the fllwing respects t btain sufficient apprpriate audit evidence t supprt its audit pinins n the financial statements and n the effectiveness f ICFR

21 PCAOB Release N Inspectin f PricewaterhuseCpers LLP Page 20 The Firm failed t test any cntrls that wuld address whether the issuer's allcatin f verhead csts t inventry was apprpriate. In additin, the Firm failed t perfrm substantive prcedures t test the verhead csts allcated t inventry during the year, ther than cmparing the csts t a schedule that it btained frm the issuer but did nt test. The issuer reprted its cnvertible debt securities at amrtized cst n its balance sheet and disclsed the fair value f these securities in the ntes t the financial statements. T test the fair value f these securities, the Firm btained prices frm three pricing services. The Firm, hwever, failed t btain an understanding f the specific methds and assumptins underlying the fair value measurements that it btained frm the pricing services. A.16. Issuer P In this audit, the Firm failed in the fllwing respects t btain sufficient apprpriate audit evidence t supprt its audit pinins n the financial statements and n the effectiveness f ICFR The Firm selected tw review cntrls ver the issuer's accunting fr its liability fr uncertain tax psitins, but its tests f these cntrls were insufficient. Specifically, the Firm's testing was limited t btaining evidence that such reviews had ccurred. In additin, the Firm referenced its substantive testing when addressing its evaluatin f the effectiveness f ne f the cntrls. The Firm, hwever, failed t test, thrugh any f its prcedures, whether the cntrls perated at a level f precisin that wuld prevent r detect material misstatements related t this prcess. The Firm's substantive prcedures t test the issuer's liability fr uncertain tax psitins were insufficient. Specifically, the Firm chse t review and test management's prcess fr develping these estimates, but it failed t test certain significant inputs, and t evaluate the apprpriateness f the methdlgy and the reasnableness f the assumptins, that the issuer used t determine certain cmpnents f the liability.

22 PCAOB Release N Inspectin f PricewaterhuseCpers LLP Page 21 A.17. Issuer Q In this audit, the Firm failed in the fllwing respects t btain sufficient apprpriate audit evidence t supprt its audit pinin n the effectiveness f ICFR The issuer recgnized a significant prtin f its revenue under the percentage-f-cmpletin methd f accunting. The Firm selected fr testing certain review cntrls ver cntract csts incurred t date and ver estimated csts t cmplete cntracts, which were imprtant inputs fr the percentage-f-cmpletin calculatin; hwever, its testing f these cntrls was insufficient. Specifically, the Firm's prcedures were limited t attending a small number f meetings that cnstituted a part f certain f the reviews and bserving dcumentary evidence that reviews had ccurred, withut evaluating whether the cntrls perated at a level f precisin that wuld prevent r detect material misstatements. In additin, the Firm failed t test cntrls ver the accuracy and cmpleteness f the data and reprts the issuer used in the perfrmance f the review cntrls. The Firm failed t test the effectiveness f any cntrls ver the issuer's impairment evaluatin fr intangible assets with definite lives. A.18. Issuer R In this audit, the Firm failed t btain sufficient apprpriate audit evidence t supprt its audit pinins n the financial statements and n the effectiveness f ICFR. The Firm perfrmed certain prcedures with respect t the issuer's evaluatin f the pssible impairment f unprved il and gas prperties, which the issuer perfrmed n a prperty-by-prperty basis. These prcedures, hwever, were nt sufficient, as The Firm failed t test any cntrls ver the issuer's prcess fr peridically evaluating its unprved prperties fr impairment prir t the lease expiratin date. The Firm failed t test certain data and evaluate the reasnableness f certain significant assumptins that the issuer used in its evaluatin f unprved prperties fr impairment.

23 PCAOB Release N Inspectin f PricewaterhuseCpers LLP Page 22 A.19. Issuer S In this audit, the Firm failed in the fllwing respects t btain sufficient apprpriate audit evidence t supprt its audit pinins n the financial statements and n the effectiveness f ICFR The Firm's prcedures t test cntrls ver the timing f revenue recgnitin and the recrding f related accunts receivable were insufficient. Specifically, the Firm selected fr testing certain review cntrls ver the issuer's invicing and shipping prcesses, but failed t test several imprtant attributes f thse cntrls. The Firm's planned apprach t auditing revenue included the perfrmance f substantive analytical prcedures. The Firm's analytical prcedures, hwever, prvided little t n substantive assurance, because The Firm develped its expectatins based n the issuer's budget, adjusted fr histrical perfrmance r industry trends, withut a ratinale as t why these amunts culd be expected t be predictive f the issuer's current-perid revenue. The Firm discussed with management the unexpected differences that were greater than its established threshld. The Firm failed t btain crrbratin f management's explanatins, beynd reading certain issuer-prepared reprts that it did nt test. In additin, remaining differences were greater than the Firm's established threshld. The Firm, hwever, failed t investigate thse differences r evaluate whether the differences represented misstatements. A.20. Issuer T In this audit, the Firm failed in the fllwing respects t btain sufficient apprpriate audit evidence t supprt its audit pinins n the financial statements and n the effectiveness f ICFR

24 PCAOB Release N Inspectin f PricewaterhuseCpers LLP Page 23 The Firm's testing f a review cntrl ver the issuer's valuatin f inventry was insufficient. Specifically, the Firm's testing was limited t determining that the review had ccurred, withut evaluating whether the cntrl perated at a level f precisin that wuld prevent r detect material misstatements. In additin, the issuer used certain systemgenerated data and reprts as part f the peratin f the review cntrl; the Firm, hwever, failed t test cntrls ver the accuracy and cmpleteness f the data and reprts. The Firm failed t test certain imprtant inputs and failed t assess the reasnableness f certain significant assumptins the issuer used t determine the value f the inventry. A.21. Issuer U In this audit, the Firm failed in the fllwing respects t btain sufficient apprpriate audit evidence t supprt its audit pinins n the financial statements and n the effectiveness f ICFR The Firm selected fr testing three cntrls ver current and deferred incme taxes, but it failed t sufficiently test these cntrls. Specifically, fr tw review cntrls, the Firm's testing was limited t bserving evidence that the reviews had ccurred. Fr a recnciliatin cntrl, the Firm's testing was limited t determining whether the preparer f the recnciliatin was the persn the cntrl descriptin specified. The Firm's prcedures t test these cntrls did nt include evaluating whether the cntrls perated at a level f precisin that wuld prevent r detect material misstatements. The Firm's substantive prcedures t test the issuer's accunting fr incme taxes were insufficient. Specifically, the Firm failed t evaluate the apprpriateness f the methdlgy and the reasnableness f significant assumptins, and/r test certain imprtant data, that the issuer used t calculate certain deferred tax assets and liabilities, cmpnents f the prvisin fr incme tax expense (including certain tax credits), and the issuer's liability fr uncertain tax psitins.

25 PCAOB Release N Inspectin f PricewaterhuseCpers LLP Page 24 B. Auditing Standards Each f the deficiencies described in Part I.A f this reprt represents circumstances in which the Firm failed t cmply with the requirement t btain sufficient apprpriate evidence t supprt its pinin that the financial statements were presented fairly, in all material respects, in accrdance with applicable accunting principles, and/r fr its pinin cncerning whether the issuer maintained, in all material respects, effective internal cntrl ver financial reprting. Each deficiency relates t several applicable standards that gvern the cnduct f audits. AU 230, Due Prfessinal Care in the Perfrmance f Wrk ("AU 230") requires the independent auditr t plan and perfrm his r her wrk with due prfessinal care. AU 230 and Auditing Standard ("AS") N. 13, The Auditr's Respnses t the Risks f Material Misstatement ("AS N. 13") specify that due prfessinal care includes the exercise f prfessinal skepticism. This is an attitude that includes a questining mind and a critical assessment f the apprpriateness and sufficiency f audit evidence. AS N. 13 requires the auditr t design and implement audit respnses that address the identified risks f material misstatement, and AS N. 15, Audit Evidence ("AS N. 15") requires the auditr t plan and perfrm audit prcedures t btain sufficient apprpriate audit evidence t prvide a reasnable basis fr the audit pinin. Sufficiency is the measure f the quantity f audit evidence, and the quantity needed is affected by the risk f material misstatement and the quality f the audit evidence btained. The apprpriateness f evidence is measured by its quality; t be apprpriate, evidence must be bth relevant and reliable in supprt f the related cnclusins. AS N. 5, An Audit f Internal Cntrl Over Financial Reprting That Is Integrated with An Audit f Financial Statements ("AS N. 5") and AS N. 13 establish requirements regarding testing and evaluating internal cntrl ver financial reprting. In an audit f internal cntrl ver financial reprting in an integrated audit, AS N. 5 requires the auditr t plan and perfrm the audit t btain apprpriate evidence that is sufficient t supprt the auditr's pinin n internal cntrl ver financial reprting as f the date f that pinin. AS N. 13 requires that, if the auditr plans t assess cntrl risk at less than the maximum and t base the nature, timing, and extent f substantive audit prcedures n that lwer assessment, the auditr must btain evidence that the cntrls tested were designed and perating effectively during the entire perid fr which the auditr plans t rely n cntrls t mdify the substantive prcedures.

26 PCAOB Release N Inspectin f PricewaterhuseCpers LLP Page 25 The deficiencies described in Part I.A f this reprt relate t ne r mre f the prvisins referenced abve, and in many cases als relate t the failure t perfrm, r t perfrm sufficiently, certain specific audit prcedures that are required by ther applicable auditing standards. The table belw lists the specific auditing standards that are primarily implicated by the deficiencies identified in Part I.A f this reprt. The bradly applicable aspects f AS N. 5, AS N. 13, AS N. 15, and AU 230 discussed abve are nt repeated in the table belw. 5/ PCAOB Auditing Standards Issuers PCAOB Auditing Standard N. 5, An Audit f A, B, D, E, F, G, I, J, K, L, M, N, Internal Cntrl Over Financial Reprting That Is O, P, Q, R, S, T, and U Integrated with An Audit f Financial Statements AS N. 9, Audit Planning K AS N. 13, The Auditr's Respnses t the Risks B, G, L, M, and P f Material Misstatement AS N. 14, Evaluating Audit Results L AS N. 15, Audit Evidence A and J AU Sectin 322, The Auditr's Cnsideratin f the J Internal Audit Functin in an Audit f Financial Statements AU Sectin 326, Evidential Matter O AU Sectin 328, Auditing Fair Value A, C, D, E, H, N, and O Measurements and Disclsures AU Sectin 329, Substantive Analytical Prcedures A and S AU Sectin 331, Inventries J AU Sectin 342, Auditing Accunting Estimates B, G, K, L, N, P, R, T, and U C. General Infrmatin Cncerning PCAOB Inspectins Bard inspectins are designed t identify whether weaknesses and deficiencies exist related t hw a firm cnducts audits and t address any such weaknesses and deficiencies. T achieve that gal, inspectins include reviews f certain aspects f selected audit wrk perfrmed by the Firm and reviews f certain aspects f the Firm's quality cntrl system. The fcus n weaknesses and deficiencies necessarily carries 5/ This table des nt necessarily include reference t every auditing standard that may have been implicated by the deficiencies included in Part I.A.

27 PCAOB Release N Inspectin f PricewaterhuseCpers LLP Page 26 thrugh t reprts n inspectins and, accrdingly, Bard inspectin reprts are nt intended t serve as balanced reprt cards r verall rating tls. Further, the inclusin in an inspectin reprt f certain deficiencies and ptential deficiencies shuld nt be cnstrued as an indicatin that the Bard has made any determinatin abut ther aspects f the firm's systems, plicies, prcedures, practices, r cnduct nt included within the reprt. The inspectin team selects the audits and aspects t review, and the Firm is nt allwed an pprtunity t limit r influence the selectins. In the curse f reviewing aspects f selected audits, the inspectin team may identify matters that it cnsiders t be deficiencies in the perfrmance f the wrk it reviews. Thse deficiencies may include failures by the Firm t identify, r t address apprpriately, financial statement misstatements, including failures t cmply with disclsure requirements, 6/ as well as failures by the Firm t perfrm, r t perfrm sufficiently, certain necessary audit prcedures. It is nt the purpse f an inspectin, hwever, t review all f a firm's audits r t identify every respect in which a reviewed audit is deficient. Accrdingly, a Bard inspectin reprt shuld nt be understd t prvide any assurance that the firm's audit wrk, r the relevant issuers' financial statements r reprting n internal cntrl, are free f any deficiencies nt specifically described in an inspectin reprt. If the Bard inspectin team identifies deficiencies that exceed a certain significance threshld in the audit wrk it reviews, thse deficiencies are summarized in the public prtin f the Bard's inspectin reprt. The Bard cautins, hwever, against extraplating frm the results presented in the public prtin f the reprt t brader cnclusins abut the frequency f deficiencies thrughut the Firm's practice. Audit wrk is selected fr inspectin largely n the basis f an analysis f factrs that, in the inspectin team's view, heighten the pssibility that auditing deficiencies are present, rather than thrugh a prcess intended t identify a representative sample. 6/ When it cmes t the Bard's attentin that an issuer's financial statements appear nt t present fairly, in a material respect, the financial psitin, results f peratins, r cash flws f the issuer in cnfrmity with applicable accunting principles, the Bard's practice is t reprt that infrmatin t the Securities and Exchange Cmmissin ("SEC" r "the Cmmissin"), which has jurisdictin t determine prper accunting in issuers' financial statements. Any descriptin in this reprt f financial statement misstatements r failures t cmply with SEC disclsure requirements shuld nt be understd as an indicatin that the SEC has cnsidered r made any determinatin regarding these issues unless therwise expressly stated.

28 PCAOB Release N Inspectin f PricewaterhuseCpers LLP Page 27 In sme cases, the cnclusin that a firm failed t perfrm a prcedure may be based n the absence f dcumentatin and the absence f persuasive ther evidence, even if the firm claimed t have perfrmed the prcedure. AS N. 3, Audit Dcumentatin ("AS N. 3") prvides that, in varius circumstances including PCAOB inspectins, a firm that has nt adequately dcumented that it perfrmed a prcedure, btained evidence, r reached an apprpriate cnclusin must demnstrate with persuasive ther evidence that it did s, and that ral assertins and explanatins alne d nt cnstitute persuasive ther evidence. Inclusin f a deficiency in an inspectin reprt des nt mean that the deficiency remained unaddressed after the inspectin team brught it t the firm's attentin. When audit deficiencies are identified after the date f the audit reprt, PCAOB standards require a firm t take apprpriate actins t assess the imprtance f the deficiencies t the firm's present ability t supprt its previusly expressed audit pinins. Depending upn the circumstances, cmpliance with these standards may require the firm t perfrm additinal audit prcedures, r t infrm a client f the need fr changes t its financial statements r reprting n internal cntrl, r t take steps t prevent reliance n previusly expressed audit pinins. 7/ In additin t evaluating the quality f the audit wrk perfrmed n specific audits, the inspectin included review f certain f the Firm's practices, plicies, and prcesses related t audit quality. This review addressed practices, plicies, and prcedures cncerning audit perfrmance and the fllwing five areas (1) management structure and prcesses, including the tne at the tp; (2) practices fr partner management, including allcatin f partner resurces and partner evaluatin, cmpensatin, admissin, and disciplinary actins; (3) plicies and prcedures fr cnsidering and addressing the risks invlved in accepting and retaining clients, including the applicatin f the Firm's risk-rating system; (4) prcesses related t the Firm's use f audit wrk that the Firm's freign affiliates perfrm n the freign peratins f the Firm's U.S. issuer audit clients; and (5) the Firm's prcesses fr mnitring audit perfrmance, including prcesses fr identifying and assessing 7/ The inspectin team may review, either in the same inspectin r in subsequent inspectins, the adequacy f the firm's cmpliance with these requirements. Failure by a firm t take apprpriate actins, r a firm's misrepresentatins in respnding t an inspectin reprt abut whether it has taken such actins, culd be a basis fr Bard disciplinary sanctins.

29 PCAOB Release N Inspectin f PricewaterhuseCpers LLP Page 28 indicatrs f deficiencies in audit perfrmance, independence plicies and prcedures, and prcesses fr respnding t weaknesses in quality cntrl. END OF PART I

30 PCAOB Release N Inspectin f PricewaterhuseCpers LLP Page 29 PART II, PART III, APPENDIX A, AND APPENDIX B OF THIS REPORT ARE NONPUBLIC AND ARE OMITTED FROM THIS PUBLIC DOCUMENT

31 PCAOB Release N Inspectin f PricewaterhuseCpers LLP Page C-1 APPENDIX C RESPONSE OF THE FIRM TO DRAFT INSPECTION REPORT Pursuant t sectin 104(f) f the Act, 15 U.S.C. 7214(f), and PCAOB Rule 4007(a), the Firm prvided a written respnse t a draft f this reprt. Pursuant t sectin 104(f) f the Act and PCAOB Rule 4007(b), the Firm's respnse, minus any prtin granted cnfidential treatment, is attached heret and made part f this final inspectin reprt. 8/ 8/ The Bard des nt make public any f a firm's cmments that address a nnpublic prtin f the reprt. In sme cases, the result may be that nne f a firm's respnse is made publicly available. In additin, pursuant t sectin 104(f) f the Act, 15 U.S.C. 7214(f), and PCAOB Rule 4007(b), if a firm requests, and the Bard grants, cnfidential treatment fr any f the firm's cmments n a draft reprt, the Bard des nt include thse cmments in the final reprt at all. The Bard rutinely grants cnfidential treatment, if requested, fr any prtin f a firm's respnse that addresses any pint in the draft that the Bard mits frm, r any inaccurate statement in the draft that the Bard crrects in, the final reprt.

32 August 12, 2013 Ms. Helen Munter, Directr Divisin f Registratin and Inspectins Public Cmpany Accunting Oversight Bard 1666 K Street, N.W. Washingtn, D.C Re: Respnse t Draft Reprt n the 2012 Inspectin f PricewaterhuseCpers LLP Dear Ms. Munter: We are pleased t prvide ur respnse t the Public Cmpany Accunting Oversight Bard's ("PCAOB" r the "Bard") Draft Reprt n the 2012 Inspectin f ur Firm's 2011 audits (the "Reprt"). We cntinue t supprt the PCAOB's missin and we value the insights prvided by the PCAOB's inspectin prcess. We persnally and ur partners cllectively are cmmitted t addressing the issues identified in the Reprt in a thrugh and thughtful manner. We have evaluated each f the bservatins set frth in Part I - Inspectin Prcedures and Certain Observatins f the Reprt and taken apprpriate actins under bth PCAOB standards and ur plicies. Our evaluatin included thse steps that we cnsidered necessary t cmply with AU 390, Cnsideratin f Omitted Prcedures After the Reprt Date, and where applicable, AU 561, Subsequent Discvery f Facts Existing at the Date f the Auditr's Reprt. We believe that as with any audit prcess, judgments are necessarily invlved in the inspectin prcess and prfessinals can reach different cnclusins abut the adequacy f audit evidence in a particular circumstance. In thse instances where such differences exist related t the inspectin bservatins detailed in this Reprt, they generally related t the significance f the bservatin in relatin t the audit evidence taken as a whle rather than the specific nature f the bservatin. S, while we may disagree with the significance f inspectin bservatins in certain cases, we have taken all f the Bard s bservatins int accunt in frmulating ur plan t cntinuusly imprve audit quality. PricewaterhuseCpers LLP, 300 Madisn Avenue, New Yrk, NY T: (646) , F: (646) ,

33 2 Cnsistently perfrming high-quality audits, and in ding s, meeting the needs and expectatins f ur stakehlders, including the PCAOB, is the tp pririty f ur partners. We lk frward t cntinuing ur dialgue with the PCAOB in supprt f ur pririty cmmitment t audit quality. We wuld be pleased t discuss any aspect f ur respnse r any further questins yu may have. Sincerely, Bb Mritz US Chairman and Senir Partner PricewaterhuseCpers LLP Vincent Clman US Assurance Leader PricewaterhuseCpers LLP