Annual Report 2019: How we take decisions - a spotlight on audit transcript

Kevin Ellis, Chair of the Management Board

In response to the spotlight on the audit sector, we have been listening to stakeholder views as part of our Future of Audit initiative. 

The input we received supported our views that audit quality is one of the most important aspects of this debate, and that high quality audits underpin trust and confidence in the sector, and in the markets. 

Earlier in the year we took a strategic decision to make a significant additional investment in audit to achieve higher audit quality on a consistent basis.

We are making a series of significant changes to our business to embed this audit programme which will benefit our people, our clients and society. 

We wanted to use this real life example to show you how our governance bodies work in practice, including how they consider our strategic decisions from different angles, and on behalf of different stakeholders - to reach our final outcome.

Perspectives from the Management Board

Hemione Hudson, Member of the Management Board

As the Management Board member responsible for audit I lead PwC’s input into the Future of Audit debate.

Discussions with shareholders and other key stakeholders showed that the audit has not kept pace with society’s expectations and demonstrated the overriding importance of investment in audit quality.

The package of measures we announced earlier this year to strengthen audit quality is key to our strategy.

We are investing an additional £30m annually as part of a wide ranging action plan.  Our investment includes:

  • Increasing training for our people, which will help them deliver consistently high quality audits and embed the right culture.

  • Hiring 500 more audit professionals, creating jobs that benefit society and the economy.

  • Further developing our audit technology that will help us to stay relevant in the future.

This programme is designed to create a business with a singular focus on audit and audit related services. It also underpins a culture of challenge which will support our public interest purpose. 

To the Management Board, these actions and objectives makes good strategic, business sense and will allow us to remain a leading audit firm.

Perspectives from the Public Interest Body

Lord Gus O’Donnell, Chair of the Public Interest Body  

The Public Interest Body exists to enhance confidence in the public interest aspects of PwC’s strategy and decision making. 

We are very supportive of the ongoing external market reviews by Sir John Kingman and Sir Donald Brydon,  and what they are trying to achieve. 

In my view, our role in PwC’s governance structure is to enhance public confidence. We can achieve this in various ways: whether that is writing to government with our independent views on the future of audit based on our experience of discussions within the governance of the firm; or reviewing and challenging key strategic decisions of what is essentially a commercial business.

So, when the Management Board presented their programme to enhance audit quality to us we were very supportive, but we also provided some constructive challenge. For example, we challenged the level of investment in quality control which, to us, was critically important to enable the business to monitor the effectiveness of the audit quality programme. As a result, the resource model for quality control activities was reviewed and that element of the strategy updated.

The Public Interest Body also had a specific interest in the 'culture of challenge’ programme, and was pleased to see the proactive steps the business proposed to engage Professor Karthik Ramanna, a distinguished academic, to undertake an independent review in this area.

Overall the breadth of skills, knowledge and experience provided by myself and my fellow independent non execs brings a different perspective to decision making. And it’s a perspective which always has audit quality and the public interest at its heart.

Perspectives from the Supervisory Board

Chris Burns, Chair of the Supervisory Board

At its core, the primary focus of the Supervisory Board is to ensure the interests of our partners is considered in key decisions. So when the Management Board introduced the ‘Programme to Enhance Audit Quality’ to us, our role was really to question and challenge the strategy on behalf of those stakeholders. 

In practice, the programme could only be achieved with a significant investment by the partnership, so the job of the Supervisory Board, and myself as Chair, was to consider this decision through the lens of those we represent.

In our discussions at the Supervisory Board, we considered and debated the views we had heard from the business as part of our partner engagement activities, and sought to understand and balance the long term benefits to partners with the immediate cost.

Overall, as the elected body to represent the partners, we agreed that the strategic decision to invest in a programme designed to enhance audit quality, and support the longevity of the firm (including the interests of past, present and future partners) was the right strategic decision to make.

As a result, we also supported and constructively challenged the executive as they developed their comms strategy to help them communicate these important messages across our business.

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