Petroleo Brasileiro S.A. - Petrobras (PBR)

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Petrobras Third-Quarter Results Delayed As PwC Declines To Sign-Off Financial Statements

Bidness Etc discusses what has caused Petrobras to delay the announcement of third-quarter results. Investors expect poor quarterly results on the back of Petrobras‘ corruption scandal

Published: October 31, 2014 at 9:48 am EST
By: Micheal Kaufman

http://www.bidnessetc.com/28349-petrobras-thirdquarter-results-delayed-as-pwc-declines-to-signoff-financial/1/


The delay in reporting third-quarter results of Petroleo Brasileiro Petrobras SA (ADR) (PBR) has been caused by PricewaterhouseCoopers’ (PwC) refusal to sign-off on quarterly results. It has informed the US authorities that only appropriate investigation will help releasing third-quarter results of Petrobras.

Petrobras has hired two independent investigators earlier this week, to determine the nature, extent, and impact of the corruption allegations made by a former senior executive. The company has announced the names of the two law firms conducting the investigation.

PwC signed a three-year contract to audit Petrobras, which ends this year. The auditing firm is responsible to conduct financial audits of the company and assure the public of accuracy of the filed financial statements. PwC’s requirements indicate how the corruption allegations have exposed Petrobras to "scrutiny from other jurisdictions where its securities trade".

PwC’s stance illustrates that the audit company has made internal investigations more strict to meet the Securities and Exchange Commission’s (SEC) guidelines outlined by the US government. Therefore, the Rio De Janeiro-based oil company has signed contracts with two independent investigation companies, one from Brazil and the other from US, to probe deeper and meet the audit and regulatory requirements of both countries.

On Thursday, Petrobras revealed names of the law firms appointed. Trench, Rossi & Watanabe Advogados and Gibson, Dunn & Crutcher will probe into the extent, nature, and impact of the allegedly illegal act of corruption undertaken by Petrobras. These firms are hired to investigate the kickback paid for a Texas refinery, which has been confirmed by two whistleblowers, namely, Supply Director Paulo Roberto Costa and a businessman Alberto Youssef, as per their testimonies released by a federal court last month.

The bribery commission was managed by the Foreign Exchange Company of Youssef and was held in the Cayman Islands and in Switzerland. Mr. Costa was arrested in March and stated that $627,000 were paid as bribes after Petrobras acquired Pasadena refinery in Texas. The senior executive has agreed to pay back $25 million to the Brazilian government, which were paid by a cartel of construction companies.

According to SEC rules, the auditor of a company whose shares are traded in the US has to report illegality in operations to the issuer’s board of directors. The auditor must then inform SEC that it has received such a report. If a company is withholding such information from SEC, the auditor is liable to send the report.

PwC has already contacted the senior officials of the oil company to correct their quarterly statements before providing them to shareholders. For this reason, Petrobras has started its own internal investigations into the accusations. The oil company is pursuing legal actions to get back the money paid on contracts by the cartel.

The quarterly results of Petrobras are likely to face further delays till the investigation makes some progress. The Brazilian state-controlled oil company has initiated investigations on Mr. Costa’s allegations to recover commission paid in a kickback scheme for contracts. The recovered money will help to adjust the cash flow position of the company.

Currently, PwC is waiting for these concerns to be dealt with as soon as possible. Shareholders await the third-quarter results, which have been delayed for long and were expected to be released last month. The company is expected to report poor results for the quarter due to the government’s involvement. Petrobras is selling fuel on subsidized prices and awarded contracts on high rates which led to a financial setback for the company.