Big four audit, consulting model questioned in PwC tax leaks inquiry

At the consulting inquiry last week, Labor senator Deborah O’Neill said the news that Mr Sayers had tried to sell the consulting arm showed that PwC’s leadership had been aware for years of the inherent conflicts between the firm’s profit motive and its public interest role.

‘Bring them into your audit team’

In response, PwC Australia CEO Kevin Burrowes said he had spent years working through such issues while with PwC UK.

“At the heart of our audit practices is doing high-quality audits. And what’s important is that that audit practice has got the right capability available to it to do its job properly,” Mr Burrowes told the inquiry.

Senator O’Neill: “It also has to have a social licence [to operate].”

Mr Burrowes: “I accept that.”

Senator O’Neill: “And a degree of trust. And it sits under the CEO who you’ve admitted has failed. Both [former PwC Australia CEOs] Mr [Tom] Seymour and Mr Sayers.”

Mr Burrowes: “I’m trying to explain the merits of a multidisciplinary firm ... our audit teams need access to cyber capability, to real estate people.”

Senator O’Neill: “So bring them into your audit team and make them accountable in the same way to external agencies that your auditors are.”

Mr Burrowes: “We can take it on notice, but it will not work, Senator. I can assure you it will not work.”

The big four firms have previously defended the multidisciplinary model by noting the lumpy nature of audit work, with most listed firms reporting in the middle of the year, would leave the experts with little work at other times of the year.

EY split attempt also failed

Two of the big four firms have now tried to resolve this problem by spinning off their consulting business while leaving behind an auditing business with enough skills to continue that line of work.

Mr Sayers failed in 2019, and rival big four firm EY failed earlier in the year in its attempt to split into separate audit and consulting firms.

Senator O’Neill told The Australian Financial Review that the big four could not justify the “inherent conflict of interest” in their business model and “what appears to be an often inappropriate fluidity of staff and information between audit, tax and consulting.

“If the skill set needed for audit is fundamentally altered in the way that Mr Burrowes suggests, there needs to be a change to the education and training of auditors,” she said.

“In the interim, specialist providers of missing skill sets should be engaged in the audit business, and subject to the professional standards that apply to auditors.”