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Scandals Force KPMG, PwC to Repair Reputations

Two Big 4 firms are updating audit practices, adding technology and taking other steps to boost their reputations in light of major scandals last year.

KPMG and PwC have taken similar steps to address ethics lapses that resulted in millions of dollars in SEC fines, Bloomberg reported.

The changes are seen by some as improved assurance that financial reports are reliable, but critics believe a fundamental conflict still exists – the need to keep valuable audit clients while consolidation reduces the number of those clients.

KPMG, reeling from a so-called “steal the exam” scandal in which senior staff conspired with the PCAOB, made changes detailed in its most recent audit quality report. The scandal resulted in prison time for former staffers and a record $50 million settlement for extensive misconduct, as determined by the SEC. KPMG worked to find out which of its clients would be reviewed by PCAOB.

The reforms include:

  • Overhauling the audit leadership team
  • Moving internal inspections out of the audit practice
  • Revising performance evaluations and compensation
  • Updating audit methods
  • Introducing a cloud-based audit system that can examine a far larger amount of data
  • Increasing partner supervision and support
  • Improving methods of assessing risk, internal controls and estimates

KPMG is also exploring partner tenure, staffing levels and even the order in which the work is handled, Bloomberg reported.

“We know there’s really no silver bullet here,” says Jackie Daylor, KPMG’s national MP for audit quality and professional practice. She says she hopes the firm can be more proactive in providing extra resources or oversight.

At the same time, competitor PwC is addressing problems with following its conflict of interest rules. The firm agreed to a $7.9 million SEC settlement last year after providing services to audit clients that were not allowed, and for failing to inform the clients’ audit committees about the work.

The reforms include:

  • Requiring independence training for staff and partners
  • Adding reviews of contracts or proposals
  • Improving communications with audit committees and adding independence coaching before or during an audit
  • Adding an independent director to the firm’s governance board
  • Forming an advisory group on culture, risk management and other areas that impact audit quality.

KMPG followed suit on some of the changes, Bloomberg reported, adding independent directors to its board, hiring a chief culture officer and re-evaluating its corporate values.

Barbara Roper, director of investor protection for the Consumer Federation of America, says auditors must stand up to management of the companies they are auditing. The risk is losing that client, but it’s a risk firms must take.

Roper said they should be transparent about how they measure audit quality – from inspection deficiencies to independence to skepticism – and use those metrics when promoting and compensating senior leaders.

“It’s got to be more than lip service.”

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PwC Study: CFOs Anxious About Massive Coronavirus Impact

Fifty finance leaders in the U.S. and Mexico are very concerned that the coronavirus pandemic may lead to a global economic downturn, according to a new survey by Big 4 firm PwC.

That No. 1 concern, cited by 80% of those surveyed March 9-11, is followed by worries about consumer confidence (48%), financial operations (48%) and workforce productivity (42%). The CFO Pulse Survey also revealed that every CFO or finance leader says their business is impacted by the coronavirus.

“We don’t think it’s a time for companies, or others, to hold onto original plans for 2020,” says U.S. Chair Tim Ryan during a media briefing, according to CFO.com. “It’s clear that the virus will change the plans of almost every company.”

Companies that are ready will feel fewer impacts, he adds. “Those that have been working very hard to control things like cost structure and liquidity will fare better, and those that weren’t will be more adversely affected.”

Most of the respondents predict the crisis will impact their revenues and profits, with 58% expecting a decrease and while 40% saying it’s too difficult to assess now. The leaders are considering financial actions as a result of the outbreak, with 62% planning cost containment measures, 44% adjusting guidance and 32% deferring or canceling planned investments.

Optimism was reflected in the survey as well, with 66% of respondents saying “business as usual” could return to normal in less than a month if the COVID-19 were to end today. Another 24% said it would take up to three months.

“The longer-lasting effects of the outbreak on consumer habits are difficult to predict, but some companies are already updating strategies in the face of temporary – and potentially permanent – changes in some markets or business models,” the survey report says.

PwC is conducting biweekly surveys of finance leaders in the U.S. and Mexico. The next set of results will be released on March 30.

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PwC to Pay $11.6M to Settle Age Discrimination Claims

PwC (FY18 net revenue of $16.8 billion) has agreed to pay $11.62 million to settle accusations that the Big 4 firm discriminated against older applicants for entry-level positions.

The legal settlement requires PwC to start a hiring program that would allow candidates age 40 or older to apply for entry-level positions. The firm must also hire a consultant to advise on inclusivity and age bias in hiring and training processes, advertise positions to older workers, and avoid asking college graduation dates.

The settlement also requires the company to make “public and internal statements” expressing its commitment to diverse hiring, including using age-diverse photos in its recruiting materials.

PwC’s chief purpose and inclusion officer, Shannon Schuyler, who is charged with working with the outside consultant under the settlement, said in an emailed statement to Law.com that the firm “is proud to affirm its commitment to identify and hire older workers.”

U.S. District Judge Jon Tigar of the Northern District of California last year conditionally certified a collective action in the case, which accused PwC of systematically discriminating against older applicants for associate, experienced associate or senior associate positions in the firm’s tax or assurance practices. The proposed settlement includes about 5,000 applicants who weren’t hired by PwC.

Plaintiffs’ lawyers came from Outten & Golden, AARP Foundation Litigation and Liu Law Firm.

“We and AARP Foundation believe strongly that age discrimination in hiring, in particular, is a significant problem today and limits older workers access to jobs and contributes to unemployment problems,” says Outten & Golden’s Jahan Sagafi. “It also limits employers access to talent because wherever you have a company discriminating they are shooting themselves in the foot by limiting the pool of talent they can draw from,” Law.com reports.

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Introhive, PwC Offering AI Services

Introhive, an enterprise relationship management (ERM) provider, is expanding its relationship with Big 4 firm PwC to offer AI-powered relationship intelligence.

The joint business relationship (JBR) began in the U.K. late last year, and has expanded to Canada and the U.S., with plans to expand into Europe.

The collaboration is intended to help increase employee productivity and grow revenue with the help of a more streamlined process, AI-powered data automation and relationship intelligence solutions for Salesforce Customer Relationship Management (CRM), Introhive reports.

“PwC is truly pioneering the way organizations drive digital transformation at a global scale,” says Stewart Walchli, Introhive co-founder and business development leader. “Not only are they delivering leading-edge solutions for their clients, but they are leading by example with their own global deployment success.”

The software eliminates data entry and fills the system with complete customer data and relationship insights. We’re eager to take our proven solution to market to help other organizations with their own transformation.”

“Introhive has been a key component to our front office transformation strategy. The power of relationship data science was evident from our first deployment five years ago and has helped us to drive a successful global deployment of Salesforce,” says PwC’s Global Centre of Excellence and consulting partner Philip Grosch. He adds that the software eliminates data entry and fills the system with complete customer data and relationship insights. “We’re eager to take our proven solution to market to help other organizations with their own transformation.”

SEC Charges PwC for Improper Professional Conduct, Violating Auditor Independence

The Securities and Exchange Commission (SEC) has charged Big 4 firm PwC with improper professional conduct in 19 engagements and for conducting non-audit services for 15 audit clients, which is prohibited. PwC will pay over $7.9 million to settle the charges.

The SEC also charged PwC partner Brandon Sprankle with causing the firm’s independence violations. PwC and Sprankle consented to the SEC’s order without admitting or denying the findings.

Sprankle agreed to pay a $25,000 penalty and to be suspended from appearing or practicing before the SEC, with a right to reapply for reinstatement after four years. PwC agreed to be censured and to pay disgorgement of $3.8 million, plus prejudgment interest of over $600,000 and a civil penalty of $3.5 million.

PwC also agreed to perform a detailed review of its quality controls for complying with auditor independence rules and for evaluating its non-audit services.

The SEC found that the non-audit services included engaging in management functions and designing and implementing software relating to an audit client’s financial reporting. Also, the firm failed to notify the PCAOB, which requires the firm to inform the audit committee of the scope of work, discuss the potential effects on independence, and document the substance of the independence discussion.

According to the order, PwC’s actions deprived numerous audit committees of information necessary to assess the firm’s independence.

“Auditors play a fundamental role in protecting the reliability and integrity of financial reporting and must ensure that non-audit services do not come at the cost of their independence on audits of public companies,” says Anita B. Bandy, associate director of the SEC’s enforcement division. “PwC repeatedly provided non-audit services without having effective quality controls in place for monitoring whether the services impaired its independence on audit engagements and were properly disclosed to audit committees.”

PwC Uses Drone In Audit of U.K. Energy Client

Not only has PwC piloted a drone to cut time from a U.K. audit – a first for the Big 4 firm – it is also helping clients tap the technology to gather data themselves.

The drone, controlled from the ground by PwC, was used to assess coal inventory for the German energy giant RWE in Aberthaw, South Wales, the firm says. At the same time, the firm predicts a “drone economy” will employ 500,000 people by 2030 and is studying drones to eventually help clients extract insights from drone data.

Now, however, recreational drones have proven troublesome for air traffic and are strictly regulated. In the future, PwC predicts that a regulated commercial fleet of about 76,000 drones will be used for a range of different tasks, reports Consultancy.uk. To prepare, the firm has gathered a team of drone experts and set up a global center of excellence to study drones’ potential.

UK Drone company’s QuestUAV’s fixed wing drone, ready to take flight

As a test, PwC used a drone to measure the volume of RWE’s coal reserves to determine value. In 30 minutes the drone captured 300 images, which were used to create a “digital twin” of the coal pile to measure its volume. The value of the coal was then calculated to within 99% accuracy. The traditional method of hand-counting inventory would have taken four hours, the firm asserts.

“While the traditional method remains reliable and will still be used for RWE’s formal year-end financial statements, the drone trial was conducted to explore ways of challenging the traditional method of stock counting,” says audit partner Richard French in a statement. “It was a classic example of new technology challenging the old – and based on our results, the potential is groundbreaking.”

Elaine Whyte, UK drones leader at PwC, adds, “Sectors with large assets in hard to reach areas are the most obvious starting points for expanding this kind of work further – from mining to agriculture and forestry… In this case, drones have allowed us to trial a more efficient service which has the potential to save both money and time, while allowing us to deliver greater insight too. There is also a clear health and safety benefit to using drones for this type of work, without someone having to climb over the coal pile.”

PwC in UK Bans All-Male Job Shortlists

PwC has become the first of the Big 4 to put a UK-wide ban on candidate lists for senior-level workers that do not include any women.

While 48% of PwC’s staff are women, they earn 43.8% less on average than their male colleagues, the London-based Daily Mail reported. The government is requiring companies of more than 250 employees to report their gender pay gap.

Laura Hinton, chief people officer at PwC, tells the Daily Mail: “Diversity in our recruitment processes is something we’ve been focused on for some time and as part of this we are ensuring we have no all-male shortlists and more diverse interviewing panels.”

PwC recently set a target to recruit 50/50 women and men. The firm also has a 35.9% pay gap for its black, Asian and minority ethnic (BAME) employees.

The move comes as the rest of the Big Four – Deloitte, KPMG and EY – had all called for greater diversity on their candidate lists. Last month Bill Michael, KPMG’s UK chairman, said the firm had a “no tolerance” policy toward all-male recruitment lists. While Deloitte and EY do not have an outright ban on all-male candidate lists, they said they too look for a diverse range of candidates.

PwC Commits $320 Million to Help Improve Technology and Financial Capability

New York-based PwC (FY16 gross revenue of $14.3 billion) launched Access Your Potential, a five-year, $320 million commitment that will focus on providing tools, training and mentoring to students, educators and guidance counselors across the U.S. with the goal of closing the opportunity, education and skills gaps.

“Too many young people are being left behind by our country’s growing education gap,” says Tim Ryan, U.S. chairman and senior partner. “At PwC, we believe that every student’s potential should be realized, regardless of their circumstances. That is why we are investing in helping young people achieve their potential by improving their financial capability and opening their eyes to tech-enabled careers.”

PwC aims to help more than 10 million students in underserved communities gain access to financial capability and technology skills curricula as well as equip 100,000 teachers and guidance counselors with tools to prepare and guide students in making sound financial choices and understanding tech-based careers.

“For us, helping young people learn these essential life skills is a responsibility, a privilege and a passion,” says Shannon Schuyler, corporate responsibility leader. “Creating an equitable society must be a priority and Access Your Potential is one of the ways that we can begin to address this formidable challenge.”

PwC Invests $45M in Wellness Perks and New Parents’ Benefits

New York-based PwC (FY16 gross revenue of $14.3 billion) made a $45 million investment into its wellness program, according to Glassdoor.

For new parents, PwC is now allowing staff members to work 60% of their hours while retaining 100% of their salary, for four weeks’ time, once their parental leave ends.

“We’re always looking for opportunities to support our people in innovative ways,” says Jennifer Allyn, diversity strategy leader. “When it comes to parents, we recognized that the transition back to work after a leave can be challenging. That is why we introduced a new option to phase back on a part-time schedule at full-time pay. This benefit will give both mothers and fathers more flexibility to ease back into their careers after welcoming a new child to their family.”

PwC’s full list of wellness employee perks includes:

  • $1,000 bonus to all staff to spend on wellness-related activities
  • Four weeks of paid family care leave for all partners and staff to care for certain family member with serious health conditions
  • Eight weeks of paid parental leave for staff of any gender with a new child (currently six)
  • New phased return to work transition, with the option of new parents working 60% of hours, at full-time pay, for an additional four weeks following a block of paid parental leave
  • $25,000 reimbursement, per child, for adoption (currently $5,000)
  • $25,000 reimbursement, per child, for surrogacy (traditional and gestational) expenses
  • Pro bono membership to sittercity.com (childcare, housekeeping, pet care services)
  • Six hours of free eldercare consultation (home assessments, implementation of care, etc.)

PwC Canada Names Marcoux as New CEO

Nicolas Marcoux

Nicolas Marcoux

PwC Canada named Nicolas Marcoux as CEO, effective July 1. He will succeed Bill McFarland, who has served as CEO since 2011.

“I’m very honored to have been elected as CEO of PwC Canada. Our foundation is strong and we have endless opportunities to continue to build trust and help our clients solve important problems in today’s disruptive and evolving business environment,” says Marcoux.

Marcoux has served a wide range of clients and industries as a corporate finance partner and the lead relationship partner on many of the firm’s key clients. He is currently a member of the Canadian executive team as the national MP of consulting and deals, and is the Montreal MP.

“Nicolas is an exceptional leader who has the passion and vision to lead our clients and firm into the future. He has a track record of engaging and inspiring teams to seize opportunities and innovate, and is passionate about the success of our clients, people and communities,” says McFarland.