Oscars flub engulfs PricewaterhouseCoopers in controversy

Watch as the wrong winner was announced for the night's biggest award. ABC

The Oscars flub Sunday night immediately engulfed PricewaterhouseCoopers in crisis, threatening to undermine the auditing giant's awards monitor reputation as social media users heaped scorn upon the company.

The company apologized early Monday after presenters incorrectly announced La La Land as the Best Picture winner, triggering an off-stage scramble that spilled onto the stage and led to an embarrassing reversal in which Moonlight was correctly crowned champion.

PricewaterhouseCoopers, often referred to as PwC, is responsible for tabulating results and monitoring the awards distribution. The company was handling the process for the Academy of Motion Picture Arts & Sciences for the 83rd year.

"The presenters had mistakenly been given the wrong category envelope and when discovered, was immediately corrected," PwC said in a statement. "We are currently investigating how this could have happened, and deeply regret that this occurred."

For a company of accountants who prize themselves on their commitment to accuracy, an event that typically burnishes their credibility quickly devolved into a global crisis.

Accounting is a "credence good," which means "customers don't know to evaluate" it unless something goes wrong, University of Michigan business professor Erik Gordon said.

"You trust in the name. If you understood accounting, you wouldn't need PwC or KPMG or any of them," Gordon said. "It's a reputation good. This is the most public goofup an accounting firm could make. Accounting firms are in the background."

Minutes before presenters Warren Beatty and Faye Dunaway announced La La Land as the victor, PwC tweeted a photo of its two accountants behind the stage monitoring the process.

tweeted a photo

A PwC spokesperson did not immediately respond to a request seeking comment Monday morning. Efforts to reach the two accountants and Oscars balloting leaders, Martha Ruiz and Brian Cullinan, were not successful.

A "simple mistake" is always a risk, but Gordon said accounting firms are hired to ensure that public companies, for example, have processes in place to avoid blunders.

"You pay your accounting firm a fortune to review your internal control procedures and sign off that you have them," Gordon said.

PwC has often bragged of its role in ensuring the "integrity and trust" of the Oscars outcome.

After the results are tabulated, Ruiz and Cullinan memorize the results and position themselves backstage with separate briefcases each containing envelopes announcing the winners. They hand them to the presenters immediately before each category.

Fans blasted PwC on social media for its handling of the matter.

The Oscars gaffe isn't the first time the New York City-based company has landed in reputation-damaging controversy.

The Securities and Exchange Commission censured PwC and hit the company with a $1 million fine in a 2003 settlement of allegations stemming from the audit of SmarTalk TeleServices, a former provider of pre-paid telephone cards and wireless services. The accounting firm failed to adequately audit a $25 million restructuring reserve established by SmarTalk, the SEC said.

PwC agreed to the settlement and fine without admitting or denying the allegations.

In 2002, PwC and its broker-dealer affiliate agreed to a $5 million settlement of a SEC enforcement action that found the company violated auditor independence rules. Spanning a period from 1996 to 2001, the violations involved prohibited contingent fee arrangements with 14 audit clients that hired PwC's investment bankers to perform advisory services for fees that depended on the success of the transactions the clients were pursuing.

The auditing company agreed to cease and desist from violating auditor independence rules and accept a censure.

Separately, PwC in 2002 reached a settlement with the Internal Revenue Service that detailed a process for the accounting giant to disclose information about its tax shelters and the companies that have used them. The company did not admit any wrongdoing but was expected to pay a financial settlement of approximately $1 million, according to media reports at the time.

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