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PwC to take big steps on audit quality, independence, accountability

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Summary

PwC has announced a series of actions over the next three years to improve audit quality, independence, transparency, accountability and engagement. These include cutting the compensation of top leaders if audit quality falls short, expanding the critical audit matters disclosed in audit reports, and stopping offering certain types of consulting services to audit clients. They also plan to do more training on fraud and going concern procedures, provide 1 million hours to a multiyear campaign to raise awareness of careers in accounting and auditing, and set up an Investor Center for Investor Advocacy and an Audit Committee Institute. The firm leadership's compensation will also be at risk if audit quality lags, and they will provide more detailed disclosures about any potential conflicts of interest in their annual audit quality reports.

Q&As

What changes is PwC making to improve audit quality and independence?
PwC is stopping offering some types of consulting services to its SEC-registered audit clients to provide greater independence, and will cut the compensation of top leaders if the firm's audits fall short on quality. It will also expand the critical audit matters disclosed in the U.S. firm's audit reports to include the more detailed kinds of key audit matters disclosed in its U.K. audit reports, and enhance its procedures related to fraud and do more training on fraud and going concern procedures.

How will the firm's audit quality and leadership performance be held accountable?
PwC plans to implement measures to demonstrate to its stakeholders that the leaders of its audit practices are accountable for audit quality. This includes provisions for putting the firm leadership's compensation at risk if audit quality lags, and public leadership certifications on PwC's own system of quality controls.

How will the key audit matters disclosed in PwC's audit reports be expanded?
The audit reports will do something similar to the International Auditing and Assurance Standards Board's standard for disclosures of key audit matters, or KAMs, as they're used in the U.K. and other European countries, while still abiding by the Public Company Accounting Oversight Board's standard for disclosing critical audit matters, or CAMs, in the U.S.

What consulting services will PwC no longer be offering to its SEC-registered audit clients?
PwC will no longer be offering certain permitted consulting services to its public company audit clients, such as the design and implementation of supply chain management systems. It will still be offering many of the types of consulting services that are still allowed for auditing firms after passage of the Sarbanes-Oxley Act of 2002, such as tax, audit and audit-related services.

What initiatives is PwC taking to engage with its stakeholders and invest in future talent?
PwC plans a series of initiatives to enhance engagement across its key stakeholders, including investing a million hours to teach and expand the interest in the profession in high schools, colleges and universities, enhancing transparency over key aspects of quality performance, and providing additional key performance indicators and new conflicts of interest reporting.

AI Comments

👍 Great to see PwC taking a proactive role in ensuring the quality and independence of their audits. It's encouraging to see the firm leading by example in addressing potential conflicts of interest and investing in future talent.

👎 It's disappointing to see that PwC is still offering some types of consulting services to their SEC-registered audit clients, as this could compromise the firm's independence. Additionally, the pay clawback provisions for firm leaders are inadequate to ensure accountability.

AI Discussion

Me: It's about PwC taking big steps to improve audit quality, independence, and accountability. They plan to stop offering some types of consulting services to SEC-registered audit clients, will cut the compensation of top leaders if the firm's audits fall short on quality, and will include disclosures about any potential conflicts of interest in their annual audit quality reports.

Friend: Wow that's really comprehensive. What do you think the implications of this are?

Me: I think the implications are that there will be more transparency and accountability when it comes to the auditing process. It will be easier to identify conflicts of interest, and the firm's leadership will be held responsible for any lapses in quality. Additionally, the firm is investing in the future of the profession by committing 1 million hours to a multiyear campaign to raise awareness of careers in accounting and auditing. This could help attract more young people to the profession and ensure that it remains viable for the future.

Action items

Research the International Auditing and Assurance Standards Board's standard for disclosures of key audit matters.
Learn more about the Public Company Accounting Oversight Board's standard for disclosing critical audit matters.
Explore the types of consulting services that are still allowed for auditing firms after passage of the Sarbanes-Oxley Act of 2002.

Technical terms

PwC: PricewaterhouseCoopers, a U.S. firm of professional services.
SEC-registered audit clients: Companies that are registered with the U.S. Securities and Exchange Commission and are subject to audit by PwC.
KAMs: Key audit matters, disclosures of key audit matters as used in the U.K. and other European countries.
CAMs: Critical audit matters, disclosures of critical audit matters as used in the U.S.
Sarbanes-Oxley Act of 2002: A U.S. federal law that sets standards for all U.S. public company boards, management and public accounting firms.
KPIs: Key performance indicators, metrics used to measure the performance of a company.
Conflicts of Interest: A situation in which a person or organization has competing interests or loyalties.