Our Transparency Report provides information on the firm’s systems of quality control over audits, as required by various regulations. This site explains how the firm is governed as well as providing more detailed descriptions of our policies and processes, particularly as they relate to audit quality.
Whilst PwC is a multidisciplinary firm, this report is primarily focused on our Audit practice and related services. It will be of particular interest to the investor community and Audit Committee members and chairs.
Hear from our Chairman and Senior Partner, our Head of Audit, and Chair of our Public Interest Body as they reflect on the last year and look ahead on our continuing journey to enhance audit quality.
The quality control system for our Audit practice as explained within our Transparency Report, has been suitably designed and complied with. The quality control system provides us with reasonable assurance that we perform and report in line with applicable professional standards.
We have had an encouraging set of inspection results this year, and continue to invest in our Programme to Enhance Audit Quality (PEAQ). By evolving our system of quality control, we will ensure it remains fit for purpose in a changing environment.
The firm’s governance is guided by our purpose – to build trust in society and solve important problems. Our purpose is central to our decision making processes and our risk appetite. It also informs how we manage our business in the interests of our partners and stakeholders.
The key matters considered in the year by our governance bodies included strategy, culture, people, quality, performance, regulation and reputation. The governance of key risks facing the firm (including cyber, regulatory and litigation risks) were also considered by the firm’s governance bodies.
The key governance bodies of the firm are described below.
The Supervisory Board (‘SB’) considers a wide range of issues such as risk, strategy, reputation, people matters including health and wellbeing, technology, return on investments, and culture. It has supported, given guidance to and challenged the Chairman and Senior Partner and the Management Board. The SB has particular insight on the views of partners and reflects these in conversations with management.
The purpose of the Public Interest Body (‘PIB’) is to enhance stakeholder confidence in the public interest aspects of the firm’s activities. It does this through the involvement of Independent Non-Executives (‘INEs'). The PIB considers a wide range of issues, as determined by the independent Chair, with a particular focus on matters of public interest.
The membership of the PIB includes a majority of INEs, as well as the Chairman and Senior Partner, the Head of Audit, the Chair of the SB and a further member of the SB.
The Audit Oversight Body ('AOB') was established in November 2020 to oversee governance of the firm’s Audit practice. It is chaired by Philip Rycoft, INE. The AOB plays an important role in ensuring we remain focused on delivering consistently high quality audits. The AOB provides oversight and challenge in areas such as Audit strategy and Audit partner remuneration.
The Management Board ('MB') is responsible for the policies, strategy, direction and management of the firm. It also provides oversight of the long term strategy and certain partner matters under the Members’ Agreement.
The MB focuses on strategic matters, utilising the knowledge and experience of both Executive Board and Clients and Markets Executive members (see the “Committee structure” PDF below for further details of these governance bodies). The MB considers matters in line with its Terms of Reference, including updates in relation to the Audit practice.
"I am delighted to Chair the Audit Oversight Body at a time when audit quality, audit culture, and the audit profession as a whole remain under the spotlight."View Transcript
Objectivity is the hallmark of our profession, at the heart of our culture and fundamental to everything we do. Independence underpins objectivity and has two elements: independence of mind and independence in appearance. We take ethical behaviour seriously. We embrace the spirit and not just the letter of the relevant ethical requirements.
The firm’s Ethics partner is Nicola Shield, and the firm’s Partner Responsible for Independence is Jon Walters. Nicola and Jon are supported by a team of specialists who help ensure that policies and processes are comprehensively and consistently applied.View Transcript
We aim to attract, develop, reward and retain top talent by creating a culture where the best people want to stay and build their careers.
We have a focused recruitment and onboarding strategy and have continued to recruit and onboard throughout the pandemic. Having the right people with the right skills is fundamental to audit quality.
Our main priority throughout the pandemic has been our people - and in particular, their wellbeing and job security. During the worry and uncertainty, we’ve sought to provide reassurance, care and clarity, and our consistently high engagement scores over the last year reflect this.
As well as protecting jobs, we’ve been able to make an unprecedented investment in our people, while planning for a post-pandemic world, continuing recruitment activity and investing in the workforce of the future.
The ability to challenge and apply professional scepticism is key to delivering high quality audits. At the start of the PEAQ we commissioned an independent paper from Professor Karthik Ramanna on “Building a culture of challenge in audit firms”.
We used this independent perspective, along with PwC’s cultural experts in our People and Organisation team, to review our culture and develop our “critical few” Audit behaviours to drive high quality:
This behaviour means being inclusive and working together, encouraging a ‘problem shared’ ethos, investing in personal and professional development, coaching with purpose, openly communicating expectations and being present.
For example, team members investing in their own and others, coaching, being present in all interactions and supporting each other to ensure we drive quality for our ultimate clients, meaning shareholders and wider stakeholders.
Being comfortable to challenge the organisations we audit, our teams and ourselves isn’t always easy, but it is fundamental to audit quality.
It’s important that we all make a safe space for challenge, that we role model constructive challenge and empower challenge by providing each other with “air cover”. Being inquisitive and speaking up is the most important way to ensure audit quality.
For example, senior team members role modelling constructive challenge and visibly challenging management will empower junior team members to challenge themselves and management in pursuit of the highest quality.
The Audit profession and our purpose as auditors is fundamental to capital markets and has a much wider value to society. Audit is a deep specialism and we acknowledge the importance of the work we do and take pride in our profession. Taking pride in our day to day work is critical to achieving audit quality.
For example, every time a team member finishes a piece of work, whether it’s a whole audit, a management letter, an audit committee report, or a single procedure, we ask them to ensure they are proud of the quality of the work.
Everyone within our Audit practice is expected to demonstrate the Audit behaviours. We’ve embedded them into everything we do, including in our training and how we evaluate performance. We undertake an annual Audit Culture and Behaviours survey to measure how our people are experiencing the behaviours and identifying any barriers to demonstrating them. By taking the pulse of the practice and tracking our progress in embedding the behaviours, we can further develop and tailor our cultural programme. Our 2021 survey showed:
82% Team first
My team regularly challenges each other around whether the course of action we are taking is realistic and/or will deliver a quality audit outcome
85% Challenge and be open to challenge
I feel confident to challenge others who demonstrate behaviours that put audit quality at risk
82% Take pride
I feel proud of the quality of our audit work
We asked some of our Culture champions to share their perspectives on our critical few behaviours.View Transcript
The firm aims to recruit, train, develop and retain the best and the brightest staff who share in our strong sense of responsibility for delivering high-quality services.
People in total
Graduates (including flying starts) and School leavers
Our PwC Professional career progression framework underpins a training curriculum that provides a wealth of opportunities for our people to develop. An individual’s development journey starts when they join the firm and continues throughout their career, tailored to their grade, role and experience.
Training our auditors through a combination of remote access training and classroom training (pre-COVID) remains a key part of our quality assurance activities.
This year, our External Auditor Training (EAT) programme was redesigned for virtual delivery. During 2020 close to 3,400 individuals completed the EAT programme, attending the summer and autumn events virtually.
The topics covered in 2020 included effective project management, common pitfalls in financial statements review, auditing the future and auditors’ reporting requirements. Subject matter experts shared lessons learnt from investigations, and there was a dedicated session on developing a “forensic mindset”. Teams also spent time together focused on coaching, supervision and review, especially in the context of a hybrid working environment.
Performance is defined for our people as “what you do (your contribution and the impact it has) and how you do it (the behaviours you demonstrate)”. Managing contribution, impact and behaviours is a year round activity. All of our people have regular meetings with their career coach to discuss their ongoing performance.
Alongside the goals that all staff set for themselves each year, our auditors are also required to set a goal specifically relating to Audit Quality. These:
At the end of each performance year our auditors are evaluated against their goals (including their audit quality goals), the PwC professional career progression framework, and the Audit behaviours.
The Audit Partner Remuneration and Admissions Committee (APRAC) is a committee of the Audit Oversight Body (AOB). The APRAC supports the AOB in the oversight of specific obligations relating to the FRC’s objectives, outcomes and principles for operational separation.
The APRAC is comprised of up to three Audit Non Executives (ANEs). The APRAC’s primary responsibilities are:
We continue to invest in our Programme to Enhance Audit Quality (PEAQ) and are committed to performing consistently high quality audits. PEAQ is made up of four workstreams: structure and governance; culture and recognition; quality control activities; and supply and demand. Taken together these workstreams ensure our commitment to audit quality is reflected in everything we do.
Of audit files inspected through internal and external inspection processes were rated good or limited improvements required (or equivalent rating)
8.3 (out of 10)
How the organisations we audit score us when asked whether our teams challenged them during the audit. Audit Committees and those charged with governance rated our overall audit quality 8.5 out of 10
FY20: No comparative available
Of our people are proud of the quality of our audit work
The FRC’s Audit Quality Review team (AQR) undertakes inspections of the quality of the firm’s work as statutory auditors of public interest entities and aspects of the firm’s policies and procedures supporting audit quality.
Similar to the AQR, the ICAEW’s Quality Assurance Department also undertakes inspections of the quality of the firm's work. However, the QAD inspects audits of entities that do not fall within the AQR’s scope. The results of the inspections undertaken by the AQR and QAD are reported to the ICAEW’s Audit Registration Committee (ARC).
The Audit engagement compliance review (ECR) programme considers the full population of audits performed and is designed to cover both the firm’s Responsible Individuals (“RIs”) and specific categories of audit clients, such as Higher Profile Clients.
The identification of a finding from an audit inspection means that a certain element of the audit has not, in the opinion of the reviewer, met the requirements of the relevant auditing standard. This does not mean that the audit opinion was wrong or that the financial statements were materially misstated. Of the audits inspected, 99% did not require a restatement of the financial statements.
Throughout the year to 30 June 2021, we also monitored 18 Audit Quality Indicators (‘AQIs’) ranging from engagement management to people metrics, on a quarterly basis to identify trends in audit quality. Separately to this, the Policy and Reputation Group (PRG) previously identified three people-related areas which could contribute to audit quality, and are measured through staff feedback surveys.
I'm encouraged to perform a high quality audit
I receive enough training and development to enable me to deliver quality audits
The teams I work with have sufficient resources to enable them to deliver quality services
FY20: I have sufficient time and resource to deliver quality audits: 55%
High quality audits support high quality corporate reporting and underpin trust in capital markets and among wider stakeholders. On average we identify at least five adjustments to each set of group financial statements we audit, with at least one of those adjustments being material to the financial statements. We also report any control deficiencies identified through our audit work to those charged with governance. On average we identify at least five key control findings per group audit.
PwC Audit methodology is a single, global methodology used by all PwC member firms. Based on International Standards on Auditing (ISAs), and adapted for supplementary UK requirements, it enables our engagements to scale from smaller and medium sized businesses to global enterprises.
Our methodology provides a framework for our engagements, and is tailored to each specific entity’s industry, circumstances and characteristics.
We established a separate Audit line of service on 1 July 2019. The Audit line of service’s revenues, split by public interest entity and non-public interest entity audits, is included in the financial information document that can be downloaded below. This document also includes the practice’s profitability as calculated by the Voluntary Code of Practice on Disclosure of Audit Profitability, issued by the Consultative Committee of Accountancy Bodies in March 2009.
Total revenues generated from Statutory audits and directly related services for all entities we audit
Audit revenues have increased this year, primarily resulting from scope changes arising from the continued impact that the COVID-19 pandemic is having on the organisations we audit. This increase in revenue allows us to deliver consistently high quality audits and meet the increasing societal and regulatory expectations of auditors.