PwC Australia releases 2021 Audit Transparency Report

Today PwC Australia released its annual Audit Transparency Report and third Audit Quality Balanced Scorecard.

PwC Australia Assurance Leader Matt Graham said the past four reporting seasons have been more complex and uncertain than any in the prior two decades. 

“Looking forward, the short-term challenges for finance teams and the audit profession may be even greater due to the compounding nature of economic uncertainty, additional attrition and the understandable, but ever-increasing, expectations regarding quality. 

“The COVID environment has put a lot of pressure on organisations, auditors and regulators.  More uncertainty, significant judgements and a rapid shift to more virtual operations and controls have both increased risk and required new ways of working.

“The past two years have been the most challenging of my 27 year career to date.  The Australian capital markets have held up well during the pandemic but it has come at a significant cost behind the scenes.  

“Eighteen months ago we simplified our goals in Assurance and told our people that we only had two non-negotiable priorities - their safety and wellbeing and the quality of our work.  Everything else came second.  We had some conversations with a small number of clients where a combination of our prioritisation of wellbeing and quality and delays in preparation from their side, often for the same reasons, meant that we couldn’t realistically help them meet their statutory deadlines.  The majority of clients were understanding and they were often mutual decisions.

“It will get harder before it gets easier.  The Australian finance sector, including auditors, significantly relies on expatriates.  We have many team members who haven’t seen family for nearly two years and others who’ve been waiting that long for an international work experience.  We’ve committed to our team that our wellbeing and quality priorities will not change and we’re determined to co-create with them a plan for 2022 that enables them to be at their best by looking after what’s most important to them personally while at the same time ensuring our audit quality standards continue to improve.   

“We’re doing everything we can to communicate with and treat all of our PwC team members in a way that tries to prevent the significantly higher attrition rates that many commentators are predicting for 2022.” 

Audit Quality Advisory Board

Last year PwC established its inaugural Audit Quality and Advisory Board (AQAB) of three leading external stakeholders in the capital markets to help drive continuous improvement in audit quality. Four of the seven recommendations in the Board’s second independent review of PwC’s approach to audit quality are focused on resourcing: 

1. Review and report on resourcing initiatives being implemented to ensure better quality outcomes, with more effective utilisation of partners and staff; 

2. Emphasise the importance of communication and coordination as audit work becomes more dispersed across channels of delivery;

3. Continue to incorporate learnings on resourcing initiatives from the FY21 culture review, including the importance of realistic budgeting to partners and staff; and 

4. Seek feedback from employees in different grades on the resource initiatives already in place.

Other recommendations are to: 

1. Update policies and professional development activities to reference PwC responsibilities as a professional firm to act in the public interest; 

2. Share with clients’ Audit Committees the practical steps that can support high-quality in company reporting and audits; and 

3. Continue to focus on training in respect of independence.

Changes to PwC’s Audit Transparency Report in 2021

“Our 2021 report provides a broad overview of how we are progressing against the appropriately high expectations of the regulators, our clients and the market,” Graham says.

As we continue to deliver on our commitment to transparency, we have responded to the expectations of our people and the markets by expanding our disclosures in several areas, including:

• Sharing the detail and outcomes of a practice wide review of our culture as it relates to audit quality, involving nearly 2,000 people (see below)

• Sharing more detail on instances of non-compliance with policies relating to audit quality, including independence, learning and education and global file inspections

• Improving the frequency and detail of specific conversations with clients on their perceptions of audit quality

• Sharing the status of implementation of management actions to recommendations made by the Audit Quality Advisory Board.

“We understand that when we commit to transparency we are accountable for continuously improving if we fall short of the standards we expect.  We’re confident we’re becoming a better Assurance team together as a result of this commitment over the past three years,” Graham says.

Humility, courage and realism critical to culture of quality 

“In FY21, in response to an AQAB recommendation we have undertaken a culture review relating to audit quality,” Graham says. 

“One pleasing outcome was that the number of our people who believe they can speak openly even if their ideas are in disagreement with others has improved by 5 percentage points. We also had over 300 clients give us an audit quality score of 81%, which sets a baseline for future transparency reports.

“At the same time, our culture was also focussed on a commitment to delivering on our promises and doing what it takes to meet deadlines.  While some see this as a positive sometimes, we know that they are not conducive to our priorities of wellbeing of our teams and promoting audit quality.  As a result of the review we have identified that if we can prioritise and recognise the critical behaviours of ‘humility’, ‘courage’ and ‘realism’ we will foster a culture to help us to achieve our quality goals. 

“We’ll continue to be passionate about broadening the conversation about audit quality in Australia and we’re committed to being more transparent, responding to feedback and ultimately, helping improve trust in our profession.” Graham says.