In an era of increased regulatory scrutiny, the Big Four accounting firms look set for a shakeup.
One Big Four firm has already taken the leap: PricewaterhouseCoopers (PwC) plans to stop giving consulting work to audit clients to avoid conflicts of interest, implicitly daring competing firms to rise to the same challenge.
The timing is certainly opportune, as the Big Four, which includes Ernst & Young, KPMG, and Deloitte, as well as PwC, have encountered pointed questions about their independence from audit clients. Earlier this year, Ernst & Young axed a plan to spin off its consulting arm following opposition from US partners and former employees.
Recently, PwC has had some 'splainin' to do. Earlier this year, its Australian division was accused of misusing confidential government intelligence to help its clients dodge taxes, amounting to “a calculated breach of trust,” according to an Australian Senate committee. And in recent months, PwC confessed to “another conflict of interest breach” from 2018.
The consulting cutback is part of PwC’s efforts to improve its audit quality in critical areas like auditor independence, accountability, quality, engagement, and transparency. In total, the firm plans to enact twelve new policies between 2024 and 2026.
The Financial Times and Wall Street Journal reported the news earlier this month.
“We see this as our role as first movers to lead the profession,” Wes Bricker, PwC’s US trust solutions co-leader, told CFO Brew. “Our orientation here is very much toward focusing on the market, focusing on the public, and the information that they need.”
On the audit side, certain consulting services, like advising clients on supply chain logistics or helping move operations data to the cloud, will stop in 2025. “Services that are core to accountants’ skill sets will still be provided to audit clients,” according to the Journal.
Outside its curtailed consulting work, PwC will establish clawback provisions for seven US executives’ compensation by the end of the 2024 fiscal year, according to the FT. It also plans to add new disclosures about juggling conflicts of interest and enhanced training for accountants on “ethics, objectivity, and fraud” in 2025, the WSJ reported.
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As PwC rolls out the new initiatives, it may make tweaks along the way, Bricker explained. “It’s ambitious, but it also reflects a different way of engaging,” he said. “As we engage, other items may come onto the list. We’ll change emphasis about where we’re spending our time, because we want a plan that has the greatest relevance in building quality and building confidence.”
PwC’s new policies will be coupled with existing technology investments in the firm’s audit capabilities, Bricker explained. It recently announced a major investment with Microsoft in a new audit ecosystem that will allow PwC to use the tech company’s cognitive technologies, including AI, to improve its audit work.
“There’s a synergy between the 12 actions and our investments in technology,” Bricker said. “Across all of [the policies], one of the core underpinnings is the need for data, the need for the capacity to consume that data, whether it’s structured or unstructured, and to make our profession and our people fully enabled to reach good decisions.”
Moving forward, generative AI will likely play a bigger role in the audit process across the industry. “Generative AI can help us comb through…in our case, we have 5,500 pages of audit standards and guidance and methodology, and AI can help us work through that for precise conclusions that are well supported,” Bricker said.
While he said he couldn’t comment on how PwC’s competitors might respond to its new policies, Bricker noted that the firm has received “very positive feedback” from its “stakeholders—our clients, policy makers, and standard-setters.”
“These actions have been very well received across the marketplace, and [they] reflect our commitment and our strategy to lead,” he added. “Others can make decisions about how and where they’ll follow.”