PwC reports improvements in audit quality

PricewaterhouseCoopers is making efforts to improve its results on annual audit inspections by the Public Company Accounting Oversight Board, especially in comparison to its fellow Big Four firms.

PwC released a midyear update to the annual Audit Quality Report  on Monday, pointing to improvements in recent years. The PCAOB released its 2021 inspection report for PwC last month, on the same day it released inspection reports for five other major firms (see story). For PwC, the PCAOB included two of the 56 audits reviewed in 2021 in Part I.A of the report, where the most significant deficiencies are described. Those deficiencies mainly related to PwC's testing of controls over and/or substantive testing of long-lived assets, equity and equity-related transactions, and business combinations. That was one more deficient audit than the PCAOB inspectors found in 2020, when one of the 52 audits reviewed was included in Part I.A of the report. It related then as well to the firm's testing of controls over and substantive testing of revenue and related accounts and inventory. However, PwC has made strides since 2019, when 18 of the 60 audits reviewed had significant enough deficiencies to be included in Part 1.A of the report. 

"We continue our journey on quality," said Wes Bricker, co-chair of U.S. Trust Solutions at PwC. "We achieved profession-leading audit quality results based on our most recent PCAOB inspection results. We're incredibly proud of that because that's a testament to the commitment that our partners and people have made to continuous improvement to the investments that we've made, and to the dedication that it takes to build trust in the capital markets."

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The firm has invested more in improving audit quality in recent years, stepping up its hiring and spending on the latest audit technology.

"What I've seen is an investment in quality, a continuation of our strategy to invest in the people, skill sets and capabilities to bring a professional challenge to the work that we do," said Bricker. "I've seen us invest, for example, in attracting great talent. We made 1,700 entry-level hires last year, 800 experienced audit professionals joined our firm, and 1,900 supplemented our workforce. Our investments in people who understand and are committed to our purpose of building trust in society is an investment that reflects our view of a future that is human led and tech powered. We're also investing a billion dollars in next-generation audit technology over the next few years."

PwC set up an independent Assurance Quality Advisory Committee in 2020 to provide recommendations from outside the firm in the wake of the 2019 inspection report (see story). Current members include Russ Golden, former chair of the Financial Accounting Standards Board; Alan Beller, former director of the Securities and Exchange Commission's Division of Corporate Finance; and Joanne Wakim, former chief accountant at the Federal Reserve Board's Division of Supervision and Regulation.

"It's valuable because it brings an outside perspective about the importance of quality as a business imperative, as well as being essential to delivering on our purpose and values," said Bricker. "It helps us stay focused on the investments that we're making in people and technology."

In 2021, PwC restructured its U.S. firm, combining its assurance and tax reporting practices into a new Trust Solutions segment, and setting up a Consulting Solutions segment covering services such as business transformation, cybersecurity, tax consulting, business deals, cloud and digital technology, privacy and risk (see story). On a global basis, the PwC International Network embarked on a strategy called "The New Equation" with the goal of creating added opportunities to serve clients, with an emphasis on building trust, delivering sustained outcomes, and furthering a commitment to quality.

As part of the New Equation strategy, PwC's U.S. firm realigned its national office to create more opportunities to engage on a sector-focused basis for clients and streamline interactions across teams.

"We reorganized it to engage on a sector-focused basis, and to more closely align with the priorities and the initiatives that are important to our stakeholders," said Bricker

He declined to comment on EY's plan to spin off its consulting side into a separate company. "While I can't comment on EY or their strategy, what I can comment on is ours," said Bricker. "We're focused on our New Equation strategy, which brings together a multidisciplinary approach we think is important to understanding, for example, climate risk, cyber, inflation and business model change — all those significant areas of expertise that go into delivering on high-quality audits — and the work that needs to be done in order to convey assurance to our stakeholders."

PwC is also preparing its auditors for what may happen with rule proposed last year by the SEC on climate-related disclosures, which would require independent attestations by firms like PwC if the rule is approved. 

"I can't speculate on whether and when they may move forward," said Bricker, a former chief accountant at the SEC. "What I see in the marketplace is companies continuing to produce reporting, and companies and stakeholders continuing to ask for assurance on the reliability of the information that's reported. That's why we've invested in the capabilities and capacity to deliver high-quality services, whether it's a financial statement audit in considering the effect of climate risk on that financial statement audit, or specialized reporting with individual metrics. We do that today when companies have voluntary reporting, and they need assurance to back up the representations that they're making to the marketplace. We do that whenever companies are reporting against mandates in the U.K. for contractual commitments in a supply chain, where supply chain partners require additional disclosure. I'm excited about the direction of additional reporting and our role of providing trust in what matters, even as regulatory requirements change, expectations evolve, and voluntary reporting continues to expand."