Dive Brief:
- Big Four accounting firm PricewaterhouseCoopers will halt the offering of certain consulting services to its U.S. clients in an aim to reduce the risk of conflicts of interest, according to a report by the Financial Times.
- The pullback in such services is part of a three-year strategy comprised of 12 policies set to be implemented from 2024 to 2026. The policies cover five key focus areas, zeroing in on improving the firm’s accountability, quality, independence, transparency and engagement, Wes Bricker, vice chair and U.S. trust solutions leader for PwC said.
- “We'll take proactive and we'll take very transparent actions to improve confidence in auditor independence, including ceasing to offer certain permitted consulting services, to public company audit clients,” Bricker told CFO Dive in an interview.
Dive Insight:
Bricker pointed to operational system design and implementation as an area where it is permissible for PwC to offer consulting services via recommendations to its audit clients, but where it will be pulling back under the new strategy.
For something such as a supply chain system, for example, “it would be permissible for us as a firm to provide advice and recommendations on management's design and implementation choices,” he said. “But we don't see that as being core to our role as the financial statement auditor, and so will cease offering those.”
PwC’s new strategic undertaking comes as auditor independence and accountability has become a heated topic among regulators worldwide in recent years, with many pushing for greater separation between firms and the companies they audit in the face of notable scandals — many involving Big Four accounting firms.
The collapse of Silicon Valley Bank, for example, reignited worries over potential conflicts of interest between auditors and their clients, with SVB’s auditor KPMG falling under a spotlight for giving the bank a clean bill of financial health just two weeks before its collapse.
In May, units of PwC and KPMG came under fire from the Public Company Accounting Oversight Board for deficiences in audits conducted for China-based companies, while Ernst & Young recently scrapped its plans to split its auditing and consulting arms into two distinct entities after pushback from its executive committee. The plan was originally intended to help the company avoid conflicts of interest among its corporate clients, CFO Dive previously reported.
Bolstering independence is a key area of focus for PwC’s new path of action, as, whether dealing with fraud or going concern or financial disclosures, “we want to be clear that we're delivering trust,” Bricker said. “We're not delivering a proposal for a consulting engagement.”
The firm’s new strategy also includes measures to ensure firm’s leadership is accountable for audit quality, including leadership “having compensation at risk provisions and public leadership certifications on PwC system of quality controls,” Bricker said.
“We believe those accountability measures reinforce the connection between our multidisciplinary firm, and the offerings that we provide to stakeholders as they use our audit reports on what now is $13 trillion of market cap,” Bricker said. Incoming initiatives are also aimed at bolstering audit quality, with a particular focus on fraud and going concern, Bricker said — areas which will require PwC to draw upon multiple capabilities as a multi-disciplinary firm.
“Whether it's change that's initiated by AI, or technology, or talent transformation or transformative deal transactions, we need to bring that expertise to bear for our audits,” he said.
The new strategy also follows plans by PwC to invest $1 billion into generative AI over the next three years in May, tapping the technology to help address risk management and to aid with predictive analytics, CFO Dive previously reported.
“We see synergy between this strategy, the investments that we're making in AI, the investments that we're making in next generation audit, and the investments that we're making in climate and tax,” Bricker said.
