The pandemic has brought enormous challenges for many of the organisations we audit, while highlighting the important role auditors play in society. Building trust in the transparency, objectivity and effectiveness of our audit work is key to our purpose and critical to providing reporting that shareholders can rely on.
Uncertainty caused by the global crisis has necessitated extra rigour around the judgements and estimates that underpin our work. We have over 5,000 auditors who have come together to solve complex problems and our most senior auditors have spent substantial time with many of the organisations we audit throughout the year.
Our profession remains under intense regulatory and media scrutiny. We continue to work with our regulator and other stakeholders, and contributed to the three reviews relevant to the profession and the BEIS Select Committee audit reform inquiries. We acknowledge the need for change and will continue to help develop solutions and deliver reforms which address the whole corporate governance system.
On 1 July 2019, we created a distinct Audit practice focused exclusively on audit and audit-related services. This means we already meet aspects of the FRC’s operational separation principles due to take effect in 2024. It has also supported our focus on the skills, resources and culture required to deliver consistently high quality audits.
We’ve adapted to remote working and used technology in new ways. For example, where possible to validate real-time feeds, we’ve accessed security cameras to attend stock counts virtually. We’ve also successfully piloted an artificial intelligence tool. Developed to automate the audit of cash, this takes quality and efficiency to a new level, and allows our people to focus on uniquely human problem solving.
Now in its second of three years, we’ve continued to drive investment and action through our Programme to Enhance Audit Quality (PEAQ). One element considers cultural and behavioural change. We commissioned Professor Karthik Ramanna to write an independent paper on how audit firms can build a culture of challenge. We combined the recommendations with internal research by our People & Organisation team which identified the behaviours needed to support audit quality. We’ve now embedded these behaviours: Team first; Challenge and be open to challenge; and Take pride.
Audit quality is fundamental to how we reward and promote our people. Attracting and retaining people with diverse skills and perspectives is also key to our strategy. As one of the UK’s largest graduate employers, we continued to recruit throughout the pandemic. Just a couple of weeks into lockdown, over 180 graduates joined our Audit business remotely and we recently welcomed a further 600.
The work we’ve done throughout the pandemic has given us an unparalleled view across businesses in many industries. We’ll take what we’ve learned into the future as we progress our commitment to consistently high-quality audits.
Our 2,550 consultants deliver strategy-led, asset-backed transformation programmes. In FY20, this transformation was driven by disruption, with COVID-19 and technology among the most significant catalysts. We’ve worked in new ways to deliver clients’ transformation priorities throughout the pandemic, while also supporting their crisis responses.
Our investments in finance transformation positioned us well to deliver multi-year engagements before and during the crisis. We finished the final ten weeks of one 60-week project remotely, going live in the middle of lockdown and securing simplified processes, improved controls, and reduced costs for our client. Customer-led transformation was a bigger feature of our business this year. The strength of our alliances with major tech vendors meant we could help clients respond to problems and opportunities through their front office in new and different ways.
Clients also called on us to stand up critical responses to COVID-19, including managing the Coronavirus Business Interruption Loan Scheme for British Business Bank. We adapted a cloud-enabled Salesforce portal to help small-to-medium-sized business borrowers access urgent financial support from over 80 lenders. Demand for managed services is increasing across industries as clients seek new operating models that allow them to mitigate risk and focus on core activities.
Our strategy house, Strategy&, enables us to turn vision into reality, delivering measurable business outcomes through deep industry knowledge, change management, and technology. Strategy& also collaborated with our Leaders of Industry to provide strategic insight on Where next? for 24 sectors.
Investment in our people is at the core of our success. Some 300 of our consultants are taking part in a Chartered Management Consultant (ChMC) pilot and, this year, 22 of our people were among the first to achieve this status in the UK. We’re also proud of our people’s awards and recognitions. Emma Booth was named Team Leader Consultant of the Year in the 2020 MCA Awards, at which we earned four wins and three highly commended entries. Engagements with Bedfordshire Police, Standard Life International (part of the Phoenix Group), and Starling Bank were among our winning projects. In June, Mary Agbesanwa was ranked number one EMpower Ethnic Minority Future Leader.
Among our priorities for FY21 are helping clients define their unique skills and technology needs, and combining this knowledge with strategy to deliver transformational results. Our global investments in integrated solutions to support our key transformation offerings - customer-led, finance, operations, HR, and risk and regulatory transformation, as well as enterprise strategy and transformation - will help secure faster value for them.
This year’s disruption cemented the importance of speed, agility and consistency. We’re committed to building on these lessons to help clients look beyond change to opportunity.
In FY20, Deals remained resilient across our transactions and crisis businesses. Our activity on client transactions was driven by the availability of private capital, foreign investor interest, and UK businesses’ appetite for strategic opportunities to expand or transform amid increasing disruption. Our focus on value creation has ensured that creating and maximising value throughout the entire deal lifecycle has remained critically important this year. We also helped clients seeking to restructure and manage cash to access greater options and achieve better outcomes by engaging earlier in the distress cycle. Our strength in crisis and restructuring will be key as we support clients to repair, rethink and reconfigure their businesses to ensure they emerge strongly from COVID-19.
Pre-COVID-19, the transactions market was active. The immediate impact of the crisis saw a slowdown in larger transactions as clients focused internally. In Business Restructuring Services (BRS), our focus has been on helping clients repair balance sheets, restructure, preserve cash, and access government schemes. In Forensics, we’ve helped clients manage risks such as fraud, secure supply chain resilience, and manage business interruption, alongside ensuring compliance with regulatory and legal requirements.
After an initial slowing, activity in Transaction Services and Corporate Finance has improved, with clients seeking opportunities for strategic M&A or entering new sectors, particularly technology, digital infrastructure, health, and pharmaceuticals.
As our clients’ needs change, we’ve transformed the way we deliver. When combined with our market and industry expertise, our investments in technology assets and data analytics allow us to bring deeper, tailored insights to our clients. We’ve also developed a dedicated UK Deals and Deals Tax team in Kolkata, India, allowing us to offer specialist skills and support clients outside of UK hours.
Our people and their skills are at the heart of Deals. Technology upskilling and secondment opportunities have fostered learning, while our Transformation Awards celebrated and helped us learn from innovation.
We also launched a diversity and inclusion programme called Session One, which saw our leadership teams getting more comfortable with challenging conversations about race, ethnicity, and bias. Our Deals-wide wellbeing decathlon encouraged connectivity and self-care.
Looking ahead, as businesses face tougher trading conditions, one of the problems that stands in the way of economic recovery and resilience is business debt. There is liquidity in the system so, while further distress is inevitable, we expect to help many clients avoid insolvency by managing cost, restructuring, and sourcing capital injections through our knowledge of private equity and access to other funding. We’ll work with clients to tell the true story of their business and, even when wind up is unavoidable, make the value clear.
Clients tell us that when we combine our cross-firm expertise and deep sector knowledge that we’re differentiated. But, we’re truly at our best when we show real care in working together with them to support their personal and business objectives. More than ever, we’re committed to bringing the best of Deals and the wider firm to create and protect value for our clients.
Risk is a source of both threat and opportunity for organisations of all sizes, and we’re helping clients navigate it with confidence. While COVID-19 has exposed new vulnerabilities, from supply chains to digital working practices, it’s far from the only disruptive force that organisations are contending with.
In July 2019, we brought together many of our accounting advisory, actuarial and risk modelling, controls, cyber security, technology, data, treasury, internal audit, and regulatory experts in a new line of service. One year on, the decision to form Risk Assurance has been confirmed as the right one in this new world of risk. We’re now operating nationally, with clients calling on our insights, and enterprise-level and issue-specific expertise to navigate uncertainty, strengthen their resilience, and unlock value in every aspect of their risk profile.
Technology risk, data and cyber security are core capabilities; we have over 1,000 technology practitioners in Risk Assurance. An FY20 highlight was a transformation project for an international health insurer. Working with Consulting, we rapidly reduced their cyber risk, improved their cyber resilience and reset their security programme. In a world where cost is under heavy scrutiny, we also supported a multinational consumer goods company to quantify its cyber risks, enabling our client to prioritise spend on building and assuring their defences. We’ve protected clients against criminal groups using ransomware to take advantage of recent large-scale remote working. The technical expertise of our European network has been recognised by Forrester, which named us a Leader in European Cybersecurity Consulting Services.
From IFRS17 compliance to calculating risk-weighted assets, the regulatory landscape remains complex, and businesses have particularly felt the impact of incoming rules this year. While financial services firms have experienced multiple new requirements in recent years, the reach of regulation extends across industries - LIBOR, for example, is potentially relevant to every corporate organisation. We’ve helped numerous organisations to understand and meet their regulatory obligations, and provide confidence to their stakeholders that they’re doing the right thing. This included commencing work with a major UK savings and investments business to review certain legacy sales practices, engage with policyholders, and assess the need for customer redress.
Our deals and accounting professionals specialise in the accounting, financial reporting and structuring aspects of M&A transactions and accounting change, working alongside Deals colleagues. As we strive for economic recovery, our ambition is to support more clients in raising capital, undertaking IPOs, optimising their balance sheet, and planning and executing transactions.
Where risk exists, known or unknown, there’s scope for competitive advantage. Achieving it demands agility, imagination, and improved trust. In this inherently uncertain landscape, we’re investing in technology, innovation, and our people to help clients respond at speed, turning curiosity to competitive advantage to emerge stronger.
Our Tax practice brings together over 4,100 experts in tax services, legal, and people & organisation to serve a diverse range of over 15,000 clients.
COVID-19 affected all markets, organisations, and individuals this year. A critical element of our response has been providing real-time insight on how to access the reliefs and incentives needed to sustain businesses and livelihoods. One area we’ve led clients through is concerns about eligibility, compliance, and practicalities, such as furloughing/unfurloughing via the Coronavirus Job Retention Scheme, while keeping the appropriateness of accessing taxpayer-funded reliefs at the heart of conversations.
Hundreds of people attended our free webinars, seeking our expertise on topics including virtual working, stabilising cash positions, and the post-pandemic tax landscape. We were also among the organisations that engaged with tax authorities as they sought to do what was right for the taxpayer.
Our teams were proud to work with clients across industries and regions to redefine their workforce strategies, ensuring they maintained productivity and met legal obligations while working virtually. Restrictions on movement meant clients needed our urgent support with managing the complexities of repatriation, visas, and international tax risks. The pandemic has spurred a huge shift in employee expectations, in where, how, and when we work - and the skills we need to do it. We’ve worked with clients to identify the digital and human skills they need for the recovery and beyond, while recognising the importance of inclusion and equality.
This appetite for fairness and building trust continued to grow in other parts of clients’ operations - for example, through tax reporting, which we explored in our latest tax transparency analysis.
As clients sharpen their focus on core activities, and seek to reduce cost and reputational risk, we’ve also seen increased demand for specialist advice and outsourcing. Clients have continued to want the benefits of alternative delivery models, such as tax managed services. Approaches to legal functions have also shifted, with the evolution of ‘New Law’ models driving demand for our managed legal services and function transformation.
Among our significant technology investments was our global network-wide focus on tax reporting and compliance, which contributes to tax function transformation and, ultimately, the effective running of tax systems. We’ve also developed Contract Counsel, an artificial intelligence platform that reviews legal contracts, flags risks, and classifies them based on importance, unlocking efficiency and helping in-house lawyers determine where to focus their time. Technology and innovation are critical but our people remain our greatest asset so we’ve invested in and updated our tax technical training this year.
Looking ahead, we expect to advise on the tax aspects of deals as organisations focus on survival and growth. We anticipate a necessary government focus on protecting and expanding the tax base to fill the growing fiscal deficit, and are ready to support our clients in meeting the new requirements that this will bring.
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Corporate Affairs, PwC United Kingdom