Hello and welcome back to another
fabulous week. Here’s what’s going on.
PwC Australia has named all 67 people involved in the confidential tax leak in an unpublished letter to lawmakers ahead of parliamentary hearings later this week.
Jan Bouwens, Professor of Accounting, Amsterdam Business School, Amsterdam, Netherlands writes a letter to Financial Times suggesting the troubled tax division could learn a thing or two from audit:
It is clear that the internal controls of PwC tax Australia would qualify as weak. However, they can turn to PwC audit Australia to seek advice on how to solve the issue. PwC audit will be happy to explain how to design internal controls that deter individual (tax) partners from sharing qualified information and to make sure that recipients of such information first establish whether the information is legit before even thinking of using that information to their benefit.
Of course, PwC tax then has to enforce this system. To enforce these internal controls, global chair Bob Moritz may want to appoint an enforcement officer who assures compliance with the internal controls. That officer may be recruited from PwC audit Australia.
In better PwC news, PwC Canada is investing $200 million ($149 million USD) into AI over the next three years.
EY Global Chairman and CEO Carmine Di Sibio shares the three most important lessons he’s learned from his 38 years at EY, advice aimed at recent grads heading out into the world:
1. Don’t be afraid to change paths
2. Success will be as much — and maybe even more — about collaboration than it is about competition
3. Don’t ever stop asking bold questions and challenging the status quo
Then he has to bring up Everest, just when people were starting to let that shit go.
Recently the EY organization decided not to move forward with Project Everest.
Let me tell you, this was disappointing to me.
But what we can’t lose sight of is that we have uncovered unexpected learnings. We have unlocked a huge amount of innovation, identified people strengths, and opened new and better conversations with EY clients and regulators.
No great change has ever taken place by defending the status quo. And to succeed, you must be prepared to fail and learn. I still believe we will transform to better serve EY clients, people and society — just at a different time, and in a different way.
Eventually, you’ll attempt your own Everest. It won’t be easy. The clue is in the name. Remember, be patient. Persevere. Learn. Even setbacks move the needle.
Ian Gow is professor of accounting and director of the Melbourne Centre for Corporate Governance and Regulation at the University of Melbourne. Stuart Kells is adjunct professor at La Trobe Business School. They wrote The Big Four: The Curious Past and Perilous Future of the Global Accounting Monopoly and also this opinion piece on Big 4 conflicts of interest in The Guardian:
It is not easy to discern anything resembling a “strategy” of the Big Four. PwC declares “we work with businesses, government and the community to deliver solutions and sustained outcomes”. This is unhelpfully vague (a “sustained outcome” could include bankruptcy or civilisational collapse).
PwC’s goal seems to rule out nothing, and perhaps that’s the point. Under “capabilities”, the firm lists a grab-bag of broad service lines that include assurance, consulting, legal, human resources, technology, infrastructure, deal-making, “Business Align & Connect”, and of course tax-related services.
It is not much of an exaggeration to say that “do everything” is the strategy. Starting from their unglamorous origins in auditing and accounting, the Big Four have expanded into new businesses seemingly without limit.
After three of the firms stepped away from consulting in the wake of the Enron and Arthur Andersen scandals two decades ago, the Big Four have seen their consulting businesses grow much faster than their traditional service lines. In 2022, advisory/consulting generated US$76bn in revenue compared to US$63bn for auditing and assurance.
Corporate history is littered with the ruins of strategic diversification – from the conglomerates built up in the 1960s and 70s only to be unwound later, to the “one-stop shop” financial services behemoths of more recent decades. But unfettered diversification is not only a bad strategy, it is also poor risk management.
For the diversifying Big Four, each new service line has the potential to expose the firms to risks that differ in type and scale from those of the existing business. Managing all those risks means deftly balancing innovation with strong internal controls.
KPMG US has appointed Jason LaRue to the newly created role of national managing partner of talent and culture (T&C).
Maria Castañón Moats (Leader), Paul DeNicola (Principal), and Matt DiGuiseppe (Managing Director) at the PwC Governance Insights Center write about the changing relationship of director-shareholder engagement on the Harvard Law School Forum on Corporate Governance site:
When done right, director-shareholder engagement can pay dividends for both the investor and the company. We identify the key steps for directors—and investors—to get the most out of these exchanges.
Years ago, “shareholder engagement” was an earnings call led by the company’s CEO and CFO, or a meeting with the investor relations team. Any contact was handled by company management.
Today, the picture is quite different. In PwC’s 2021 Annual Corporate Directors Survey, more than half (53%) of directors say that board members (other than the CEO) engaged directly with the company’s shareholders during the prior year.
Part of this shift in engagement relates to investors’ recent focus on environmental, social and governance (ESG) concerns, and the desire to hear from directors about how the company is approaching those issues. In 2021, ESG topped strategy as the most common discussion topic, it was raised in 43% of discussions, up from 23% in 2020.  Directors can be well-positioned to give investors a long-term view of the company’s plans.
The ESG market is becoming an increasingly rewarding service area for mid-tier accounting firms despite the current lack of reporting requirements faced by small and medium sized organisations in the UK, market participants have said.
Some other stuff for your reading pleasure:
- Japan’s Small Accounting Firms Pressed to Forego Audits or MergeHudson woman who owns Cuyahoga Falls accounting firm charged with creating false returns
- McCarthy & Company, PC Merges into Marcum
- IRS battles coverup accusations in Tax Court
- Employers add 339K jobs in May, with 10.8K in accounting
- CLA Looks to Plant the Accounting Seed Early With New High School Internship Program
Have a great week and gimme a shout if you see anything interesting.