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Updated June 15, 2020: Focus on Rebuilding Revenues in Latest PwC CFO Survey

The new installment of a biweekly survey from Big 4 firm PwC gathered the input of 330 finance leaders ending the week of June 8, just as most states were more fully reopening their economies, several potential flare-ups of new COVID-19 cases were threatening to emerge and the U.S. economy officially entered a largely expected period of recession. Against this backdrop, CFOs expressed optimism about being able to start rebuilding revenues, even while acknowledging long-term concerns about what the “new normal” is going to look like.

Worries about a new wave of COVID-19 infections top the list of threats to business recoveries and the financial impacts of the pandemic. Liquidity and capital resources were prominent on that list, but only 42% of CFOs said it was a top concern in this survey, versus 75% in April.

Getting Back on Track

Nearly half (47%) of respondents expect revenue declines of more than 10% this year, but only 13% of CFOs are now looking at declines of more than 25% – a drop from 20% expecting such steep declines five weeks ago. And 11% are now starting to see prospects for revenue and/or profit growth in 2020 as the economy reopens.

Survey respondents noted multiple potential paths to grow their top-line revenues, with 63% of CFOs planning changes to products and services and 41% looking to alter pricing, among other revenue strategies. Meanwhile, as they look to reinvent their businesses, nearly one-third of CFOs (32%) will be focusing on tech-driven products and services.

Returning to the Office Amid a Second Wave?

With a potential resurgence of the outbreak looming, 59% of CFOs worry about a rise in COVID-19 infections affecting returns to work. Nevertheless, most are very confident their company can both provide a safe working environment (71%) and meet customers’ safety expectations (80%). Of course, their staff may have a different view of the situation back at the office, considering that only 47% of employees in a separate PwC workforce pulse survey said changing workplace safety measures – such a face masks, temperature checks and socially distanced work areas – will make them more comfortable returning to the office.

Given this lack of consensus – and considering the relative productivity of remote working for many companies over the past few months – 54% of CFOs are planning to make remote work a permanent option. Meanwhile, fewer leaders anticipate more furloughs (30%, down 6% from the previous survey) or layoffs (24%, down 7% from the previous survey) in the next month, a trend consistent with the slowing number of people filing for unemployment.

 

Updated May 11, 2020: CFOs Forecast Lasting Changes in Latest PwC Survey

The latest CFO survey from Big 4 firm PwC largely reflects the developing general consensus as to how the country will eventually emerge from the COVID-19 pandemic – slowly, cautiously and with eye toward structural and behavioral changes that may very well turn out to be permanent.

The new installment of PwC’s biweekly survey canvassed 288 finance leaders during the period of May 4-6, when an increasing number of states were loosening stay-at-home orders, cases were still on the rise in many areas and unemployment continued its steady upward trajectory. More CFOs agree that the path going forward is going to be a long one. For the first time, more than half expect their company to take at least three months to recover once the virus recedes.

That said, as they approach some new version of normal, two-thirds of respondents are “very confident” their company can create a safe workplace (even if employees aren’t as sure), 68% believe that crisis-driven transitions to remote work will make their company better in the long run and fewer are considering pushing back or canceling planned investments (58%, down from 70% two weeks ago).

Managing Change

Companies seem to be getting a better handle on conducting business in a transformed environment, with concerns over productivity losses due to remote working conditions declining. In fact, 44% of respondents say they’re finding new ways to serve customers, with many noting that social technologies routinely used in our private lives are now being absorbed into operational planning in the workplace. Despite these silver linings, however, 55% still expect their company to suffer a decline of 10% or greater in revenue and/or profits for this year, a slight uptick from two weeks ago.

Cost Containment

Even as costs remain under scrutiny for almost every company, many CFOs believe they’ve done what they can and will wait to see how things develop before making additional cuts. In addition to the aforementioned optimism toward pullback on planned investments, fewer respondents anticipate furloughs over the next month – 36% in the current survey versus 44% two weeks ago. Further, 34% say they are “very confident” their companies are identifying new revenue opportunities – a number PwC believes will increase as demand becomes clearer.

Heading Back

As they ponder what a return to the office may look like, CFOs are getting more concrete about how their companies will prepare, as evidenced by rising numbers since the last survey in three of the top areas of expected change – reconfiguring work sites to promote physical distancing, changing workplace safety measures/requirements and changing shifts or alternating crews to reduce exposure. Even so, a separate PwC survey of 468 employees found that 51% who have been forced to stop working or forced to work remotely say the fear of getting sick would prevent them from returning to the workplace if their employer requested it tomorrow. In other words, no matter what protective measures companies put in place, they’ll likely still have to sell the idea of a return to the office to a worried and skeptical workforce.

“The shutdowns showed many companies that they can work virtually better than they thought,” the study concludes. “These leaders are seeing the results of being able to move quickly and decisively during a crisis, even while away from the office, and they’re making connections to the longer-term health of their companies. Ultimately, however, the longevity and success of remote work will be driven by the opportunities businesses create for employees to interact, learn and be part of a community. For some organizations, culture also drives innovation and can deliver higher returns, outweighing the costs of on-site work.”

 

Updated April 28, 2020: CFOs Weigh the Risks of Reopening and the Potential Economic Impacts in Latest PwC Survey

As the country begins contemplating when and how to restart the economy amid the ongoing COVID-19 pandemic, the latest CFO survey from Big 4 firm PwC published on April 28 shows the level of concern among corporate leaders holding steady.

The new installment of PwC’s biweekly survey series took the pulse of 305 finance leaders for the push-pull week of April 20, as coronavirus cases in many states had started to level off, several stay-at-home orders were further extended and plans for reopening certain businesses began to take shape. Against this backdrop, 72% of respondents continue to believe COVID-19 has the potential for “significant impact” to their business operations, down only slightly from 74% two weeks prior. What has emerged in recent weeks, however, are more serious discussions about companies returning to some semblance of pre-lockdown operations.

“U.S. finance leaders are focused on shoring up financial positions, as U.S. businesses head into a period of even more operational complexity while they orchestrate a safe return to the workplace,” according to the study. “Back-to-work playbooks put workforce health first, as companies set course for a phased-in return to the workplace that will not be uniform across the U.S. or internationally. Returning employees and customers are going to experience a work environment that will differ in marked ways as a result.”

To illustrate the potential changes that lie ahead, 49% of respondents say remote work is here to stay for some roles, as companies shift to alternate staffing and reconfigured worksites that promote social distancing. Meanwhile, 77% of surveyed CFOs expect to see new safety measures like testing put into place, and 50% are planning on higher demand for enhanced sick leave and other policy protections for employees.

But companies are also beginning to realize that the business recovery from the impacts of the virus will take longer. As measures of manufacturing and service activities continue to drop and demand continues to shift, 48% of CFOs believe it will take at least three months to return to normal, up from 39% in the previous survey.

In terms of the financial fallout they expect from the pandemic, 53% of respondents are projecting a decline of at least 10% in company revenue and/or profit this year. And as cost pressures intensify, 32% of these CFOs expect layoffs to occur (up from 26% two weeks ago) and 70% are considering deferring or canceling planned investments, mostly in the areas of facilities and general capital expenditures, but not as much in investment programs considered important to future growth such as digital transformation, customer experience or cybersecurity/privacy.

As the recovery from COVID-19 slowly evolves, the study advises leaders to remain committed to the spirit of open communication and people-first policies.

“With most firms expecting to bring people back on-site in phases, leaders will need to help employees adjust to a changed environment while still managing the well-being, engagement and productivity of all workers. Purpose-led communication will continue to be critical to keep people informed, and leaders should demonstrate empathy while helping employees adjust to what will likely be an extended transition period.”

 

Updated April 14, 2020: PwC Survey Finds CFO Concerns Growing As Pandemic Continues

Big 4 firm PwC, in its third survey since COVID-19 stay-at-home orders took effect, finds that CFOs are increasingly worried about financial impacts, recovery time and cost-cutting, including layoffs and furloughs.

This survey of 313 finance leaders covered the week of April 6, when unemployment claims surged and attention turned to the federal stimulus package as deaths from COVID-19 mounted.

The top concern of respondents is the financial impact of the coronavirus as a recession looms and cash flow tightens. The survey says 75% are worried about the pandemic’s effects on results of operations, future periods, and liquidity and capital resources. A potential global recession is feared by 70%.

Also, CFOs are far less optimistic about the time it will take for their businesses to recover.

“Hopes that the outbreak will dissipate quickly are receding,” according to the PwC COVID-19 CFO Pulse Survey. “Only one in five respondents now believes they’ll be back to business as usual within a month once the outbreak ends. In contrast, during the week of March 9, as shelter-in-place orders started taking hold in the U.S., 66% of U.S. and Mexico respondents estimated that their companies could recover within a month.”

CFOs also noted that since so many changes are taking place now, with employees working remotely and customer interactions changing, that recovery will be complicated, as they try to predict what a new normal will look like after the outbreak ends.

As cost pressures increase, workforce reductions in May are anticipated by 26% of respondents and 41% expect furloughs. “This marks a significant change. Two weeks ago, only 16% of leaders in the U.S. and Mexico expected layoffs, while 44% expected furloughs. Separation of the workforce, or layoffs, is typically considered a means of last resort,” the survey says.

In another effort to cut costs, 67% of the U.S. leaders surveyed say they are considering deferring or canceling planned investments in the following areas: facilities/general capital expenditures 82%, workforce 67%, operations 55% and IT 53%.

To cope, nearly half (49%) of finance leaders surveyed say their company plans to take advantage of various government relief programs, most notably the $2 trillion CARES Act, which covers loans, loan guarantees, grants, assistance payments, contracts and tax incentives. Among the leaders who expect to make use of these measures, 81% expect to defer tax payments.

PwC is conducting a biweekly survey of finance leaders in the U.S., Mexico and 19 other territories. The next set of results will be released April 27.

The PwC survey says that finance leaders are making tough decisions as they prepare for a recession. “Helping people feel more prepared and informed by being transparent about the health of the company is crucial. Company leaders who are forthright about the decisions the leadership team is making — and how the workforce may be affected — can build trust by helping people stay informed, even if the news isn’t good. Trust and transparency are also a key part of stakeholder management. The situation is uncertain, and nobody can be sure what will happen, but providing regular updates means stakeholders won’t be caught off guard.”

 

March 17, 2020: 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.

More news from PwC

PwC Looking at Employee Stress Levels

As stress levels related to the ongoing pandemic continue to ramp up, Big 4 firm PwC is looking to use AI and psychological analysis technology to help employees monitor their mental health and overall well-being.

Starting in the UK, the firm is rolling out an AI wristband to staff members that will track the wearer’s pulse, sleep and exercise patterns to determine how well they recover from heightened anxiety levels. This collected data will be supplemented with psychological tests and information about participants’ work loads to determine if patterns exist between certain behaviors and reactions.

PwC introduced the voluntary program to UK employees in mid-May, with more than 2,000 individuals signing on to be test subjects (double the capacity for the test program). As the results of these trials start to come in, the firm believes the technology may also be rolled out to clients at some point.

PwC Developing Internal Contact Tracing Tool for Employees

In a potential preview of office life to come as states and municipalities across the country begin to reopen their economies, Big 4 firm PwC is developing a contact tracing tool that will enable executives and HR to notify employees who have had contact with an employee who tested positive for COVID-19. The mobile app is currently being tested in the firm’s Shanghai office with plans to roll it out to the entire 275,000-person workforce before offering it to corporate clients.

Using signals from users’ phones, the app can tell how far away and for how long two people were in contact. If someone at a workplace tests positive for the virus, HR can then look up which other employees are at the highest risk using the digital contact tracing system, helping to pinpoint infection sites so that entire offices or floors aren’t shut down from a single confirmed case.

While governments around the world are grappling with the question of how to implement widespread contact tracing across massive populations, PwC believes its solution will allow companies to get out in front of the issue since they can compel usage among their workforces. The firm also stresses that the app has robust privacy, access and retention controls in place to ensure that only company administrators can access the data – another major sticking point facing contact tracing proposals for the general public.

PwC will begin selling the software starting in mid-May with a subscription fee as part of a suite of tools for remote work.

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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.”

More news from KPMG

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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.”