PwC's 'perception' problem

PwC CEO Tom Seymour told the AFR Business Summit last week that the firm is having an on-going perception issue. This after he contradicted evidence he gave to a Senate committee in February 2023 that up to 30 partners and staff were involved in sharing confidential government tax policy information.

Seymour's verbal gymnastics around the breach of confidentiality agreements is spectacular. He really said it was just one partner and there's no evidence that others in the firm were aware of, used, benefitted from the information Peter Collins shared. So Peter Collins didn't share anything with anyone? Yeah right. No. Wrong. Tom you said in the Senate hearing that 'There were partners and staff in both Australia and internationally who were involved in these discussions from the evidence available to us'.

PwC and other big consulting firms will face a new Senate probe into conflicts of interest, accountability and integrity breaches, due to report by September 26, 2023.

Dejevu? You might like to read Mike Brewster's book, Unaccountable How the accounting professional forfeited public trust (Remember Enron/Anderson?).

Something has been bugging me since the the spill of the Tax Practitioners Board by Jim Chalmers. While I see that as a great thing it's all a bit more of the same..ineffectual. Let me refresh your memories.

2019

The ACCC investigates whether the big 4 accounting firms co-operate as a cartel or in an anti-competitive manner in the way they sell audit and consulting services.

In 2019 PwC, Deloitte and EY, all of which were facing shareholder r investor class actions of the quality oft their audits have told the courts their partners should not have to hand over documents associated with those audits as they protected by the privilege against self incrimination - a privilege not normally extended to documents of a corporate nature as it is an individual protection.

ASIC undertakes audit inspections and in 2019 the percentage of finds where ASIC felt insufficient work had been done varied: Deloitte - 32%, EY 22%, KMPG 21% and PwC 12%. I mean, these professionals are meant to be some the smartest people in the room right? How can they get basic things like net assets and profits wrong - well they needed to make material changes to their reports? ASIC, through its long-running audit inspection program and other surviellence programs has consistently stated that there are problems in audit in Australia and that they're concerned about conflicts of interest...but little seems to happen to call the firms to account (pun intended).

And then at the end of 2019 PwC and the other firms published their own results. Some transparency at least..but no action/consequences.

Just to make us all feel good the Financial Reporting Council told the parliamentary inquiry into audit quality that everything was hunky dory. Oh, and that body just happened to be chaired by a former PwC partner, Bill Edge, who was still being paid by them. Nothing to see here?

It even said that the Big 4 and others were 'implementing additional accountability mechanisms, expanding their communication and education. Clearly Tom Seymour didn't see those particular memos and told the 2023 Senate committee that 'we didn't have the right management tool in place', didn't have an effective system in place to manage the confidentiality agreements signed by its advisers. What?

This is the same Tom Seymour who was the boss of PwC's Taxation practice when start tax partner Peter Collins was raking in large consulting fees by breaching his confidentiality agreement with the ATO with who knows how many other partners and staff.

Surely partners and advisers know what a confidentiality agreement is and what what it means? That you can't share confidential information with anyone. Is that so hard?

Methinks that the ATO second Commissioner, Jeremy Hirschorn, got it right back in September 2019 when he shares his scathing assessment of the culture and lack of safeguards at Deloitte, EY, KPMG and PwC warning that the firms needed to rein in 'hired guns' and 'guru' tax partners that come up with these overly aggressive tax schemes. Well, we know where PwC got it's inside information on these don't we?

A systemic risk

The ATO believes the Big 4 firms are systemically important to the Australian financial system, yet are operating like boutique firms with little consistency in the taxation views from partner to partner and 'a hubris and attitude to taxation in some tax partners (often the most successful ones) that has no place in systemically important firms.'

Overall conflicts of interest, where the firms are providing supposed independent audits even after 10 years, and on top of that issuing 'independent audits', advising them on tax structures, conducting actuarial work and reviewing their risk frameworks - consultancy work.

The reality is, with their advisory and consulting arms the Big 4 firm partners are more like insiders of the financial system with their influence in all aspects of business, regulation and oversight. Former partners end up on the boards of public and private companies, all the while receiving payments from their former firms. They head up CPA and and ICA ANZ, take on roles in ASIC, APRA, FRC, The Tax Practitioners Board, advise government about new policies and sit on international standards boards.

2021

Suffice to say, you can say there's really no such thing as an independent audit when a Big 4 firm is involved, just like there's no real self-regulation (a small fine for PwC Canada when over 1,200 auditor staff cheated on exams and the US audit watchdog fined KPMG?Australia?after?staff?were found to have?cheated?on integrity and skills?tests?for about five years. KMPG did fire two partners and docked the pay of some others.

Well, the UK and the US got fed up with this conflict of interest after various reviews (the Brydon review in the UK) and established new audit standards bodies, the Audit, Reporting and Governance Authority in the UK and much earlier Sarbanes-Oxley Act (2002) in the USA.

2023

So, yes, Tom Seymour, the latest issue your firm has, the tax leak, isn't acceptable, it should never have happened and it doesn't meet the standards we expect of you and others.

The real issue is, however, why does this type of behaviour keeps happening to you and other Big 4 firms? Why is there such a disconnect between the behaviours and actions of some of your partners and staff and the law, shared values of our society?

This is not a matter of perception. It's a matter of fact.

And your attempt to minimise the issues through verbal gymnastics rather deeply exploring why it keeps happening shows you and other partners have no intention of changing, as you don't really see it as an issue. Or maybe you simply see it as 'a cost of doing business' given you make millions out of the advice.