PwC is investing £30m to revamp its scandal stricken statutory audit practice, including a bold proposal to split its audit practice into external and internal auditing teams.
The plan, PwC announced on Wednesday, has three key areas: additional investment in training, people and technology. Namely, the new audit arm will be strengthened by hiring an additional 500 experienced auditors.
PwC’s audit overhaul comes after a slew of high profile blunders at Carillion, BHS, and HBOS, to name a choice few. No member of the Big Four has emerged from these past few torrid years with their reputation unharmed.
Criticism of the big four firms has become increasingly intense. PwC, in particular, was on the receiving end of perhaps the most incendiary of the criticism to date.
After Carillion’s spectacular collapse, Frank Field, chair of the work and pensions committee, singled out PwC, stating that it “managed to play all three sides – the company, pension schemes, and the Government – to the tune of £21m” and “are now being paid to preside over the carcass of the company as Special Managers”.
PwC was also the auditors implicated in the sorry saga of BHS. Its external audit on the 2013-2014 accounts of the now collapsed retailer drew record £10m fine from the FRC, dwarfing the previous record of £5.1m (also held by PwC for its audit of RSM Tenon).
But PwC is far from the only Big Four firm to be caught up in controversy. EY, Deloitte, and KPMG have had their share of scandal, too and the widespread nature of the audit failures prompted the Competition and Markets Authority (CMA) propose an operational split between audit and non-audit work.
PwC’s split can perhaps be seen as an attempt to get ahead of any prospective shake-up. “Over the last year, we have been listening to the views of a wide range of stakeholders about the future of audit – exploring how it needs to change to meet society’s evolving expectations,” stated Hermione Hudson, PwC’s head of audit.
“Given the important role that auditing plays in the modern economy, everyone that relies on audit work needs to have the same high level of confidence in its transparency, objectivity, and effectiveness.”
As part of the reform package, PwC will double the amount of time its auditors spend in face-to-face training programmes annually and increase the number of specialists in its audit quality control team by two-thirds.
The firm has also drafted in Karthik Ramanna, professor of business at the University of Oxford’s Blavatnik School of Government and longtime critic of the audit industry, to write a paper on “what a culture of challenge means for auditors in 2019”.
“It seems a bit weird,” said Robert Stell, director of Rise Audit, reacting to PwC’s measures. “Are they are going to retrain their audit teams to think differently?
“It’s obvious the Big Four are motivated to do something to stop it being forced upon them. But they’ve got to change the culture and that’s a real root and branch operation. PwC’s changes sound a little like an attempt to put some measures in that’ll satisfy any government body that’ll come along and change things.
“It sounds like tinkering and not fundamental change and it’s also shifting the blame down to the lower levels. The problem has been at the highest level.”