People’s Court revives debate on auditor’s responsibility

The allegation, which will be appealed by Ron and PwC because it is not final, further highlights the responsibility of audit firms and their audit partners.

In this case, the judge indicates the presence of a “powerful indicative load”. which allows us to confirm that both partners “knew and accepted” the false statements in the reports and “in collusion with their authors, agreed to publish unqualified reports for the purpose of effectively promoting the distortion of the true image of Banco Popular” and maintaining the banking institution as the firm’s audit client. PwC was Popular’s auditor for 35 consecutive years, starting in 1981.

“Both defendants, as external auditors of Banco Popular, not only knew that the accounts presented by that organization in 2015 and the financial statements corresponding to the first quarter of 2016 did not reflect the true image of the said organization, but also that they knowingly assisted in order to perpetuate a misrepresentation of the financial position of Banco Popular through its authored reports,” the judge adds.

Role of auditors

Regarding PwC’s role, the order states that the professional services firm “limited itself to providing its compliance model without certifying the effectiveness of said guidance in order to avoid subordinating its staff’s audit reports to the interests of the auditee.” “. Both PwC as a legal entity and two accounting auditors are being prosecuted in this case.

The fact that PwC uses its compliance policies to protect itself is not trivial. The law allows companies to be immune from criminal liability that prove they had robust compliance policies, although in this case the judge noted that “it is difficult to say without doubt that PwC adequately supervised the successive audits that Pedro Barrio Luis conducted.” and José María Sanz Olmeda, held at Banco Popular in 2015 and 2016,” and relate to future litigation.

A major example of the importance of having a compliance policy is the Bankia case, where the National Court decided to prosecute the auditor Francisco Selma, but at the same time agreed to bring proceedings against Deloitte as a legal entity after concluding that there was a quality control system. The case was later withdrawn by the Criminal Court, but in the end the National Court agreed to acquit Selma and Deloitte. The Supreme Court ratified the case in 2022.

To these cases is added the BDO case with Pescanova. A year ago, the Supreme Court acquitted BDO Auditores and one of its partners, Santiago Sagnier, of auditing Pescanova’s accounts after the National Court sentenced them to three and a half years in prison in addition to paying compensation. for civil liability. The High Court upheld the partner’s appeal, finding that it was not proven that he knew about the falsity of the accounts and deliberately sought to distort the true image of the company. BDO said in a statement that the decision confirmed the adequacy of its compliance and internal control systems.

Impact on the sector

This belief kept industry professionals on edge because of the implications it could have on auditing practice in the future if it became final. On the one hand, this would make it more expensive to require the liability insurance required by law to practice, and on the other, it would bring the profession under control, creating a much-needed precedent for the audit industry. ‘ responsibility.

Another old case that has had an impact on the sector is Gowex. Ten years ago, the National Court ordered the detention of José Antonio Díaz Villanueva, an auditor for a free Wi-Fi company, after failing to pay the 200,000 euro bail that had been imposed on him to avoid imprisonment. The court found it proven that she “covered up” the falsification of the company’s statements in order to obtain financing.

With this ruling, Judge José Luis Calama completed the investigative phase of the case, which began in 2017, and informed the prosecutor’s office and the prosecution to request either the commencement of an oral trial with the formulation of charging documents, or dismissal. affairs. Those under investigation can appeal the ruling to the Criminal Chamber of the National Court, as Ron and PwC have already announced.

After the investigator receives the charging documents, he issues a decision to begin an oral trial.