First reported by Financial Times on Sunday, it seems PwC is now overly cognizant of conflicts of interest, even just the perceived ones.
PwC is planning to give up tens of millions of dollars of consulting work for its US audit clients to reduce the risk of conflicts of interest, challenging its rival Big Four firms to follow suit.
The accounting firm has begun to tell clients it will stop offering them some advisory services, even though they are permitted under US rules, as part of a wider revamp of its audit work.
Knowing what we know about Big 4 firms, not a single one of them would voluntarily give up millions of dollars unless they had to. So what’s up? “Sarbanes-Oxley was not proactive,” PwC US chairman Tim Ryan told FT. “It happened as a result of a breakdown in our capital markets. The reality is there’s room for improvement in our profession, both in substance and in appearance, and there’s things that we need to think about proactively.”
“There was a perception that we do a lot of consulting work for our audit clients,” he said. “We have no desire to be close to the line.”
Could it have something to do with the heat on their counterparts in Australia? Because consulting firms over there are getting proctologically inspected by all manner of politician and media professional about everything from salaries to clients.
Apparently PwC tried to get other behemoth audit firms on board with cleaning up perceptions, the others weren’t down:
PwC first floated the idea of all the large accounting firms acting together via an industry group called the Center for Audit Quality, according to three people familiar with the discussions, but it did not get cross-industry backing for its ideas.
“We have really good competitors but what they do is up to them,” said Tim Ryan, senior partner of PwC US.
Wall Street Journal‘s take on the situation says PwC is planning several new initiatives through 2026 “in areas such as auditor independence and transparency to meet growing expectations for auditors.” One of these initiatives will mean clawing back pay for high-level leadership in the event of an ethics scandal which should have been a thing all along.
The firm moved forward with the 12 policies after conversations with investors, audit committees and businesses and a review of 15 years’ worth of academic studies conducted on the profession, said Tim Ryan, senior partner at PwC’s U.S. unit. “We saw a number of stakeholders just demanding more transparency of businesses and those in the business ecosystem,” Ryan said. “As we see needs changing, we have a desire and a commitment to be more proactive going forward.”
Under PwC’s plan, it would cease providing certain consulting services by 2025 to SEC-registered audit clients such as advising a client on implementing a supply chain or other operational system. PwC also will stop helping audit clients migrate their operational data to the cloud, because these data are increasingly used in financial reporting and could pose a conflict, the firm said.
Services that are core to accountants’ skill sets will still be provided to audit clients, PwC said. For example, PwC still will sell a nonaudit-related product known as a disclosure checklist, which helps audit clients prepare for financial disclosures.
You’ll note that PwC is the trust-iest Big 4 firm, spitting out the word “trust” a whopping 202 times in its 17-page 2022 Global Annual Review. It isn’t just a word, it’s a way of life.
In its last revenue cycle, advisory’s take of $20.7 billion grew PwC’s global revenue by 23.5% compared to 7.6% growth in audit and 6.8% in tax & legal. We don’t have exact numbers on PwC US’s part of that but we do know that the US business grew 17% in fiscal 2022. So that’s a lot of money to leave on the table for the sake of perception, specifically between $50 million and $100 million in annual revenue by PwC’s estimate.
PwC to curtail consulting work for US audit clients to reduce conflict risk [Financial Times]