Inspiring a movement of trust: reporting and assurance in the 21st century
By Richard Sexton

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Message from Richard Sexton, PwC Vice Chairman, Global Assurance

Comparing different eras is always difficult, but I can’t think of a time in my working life when being in business has been more challenging – or more exciting. Companies of all sizes in all industries are facing up to fast-changing global issues, sustained economic uncertainty, unrelenting scrutiny, disruptive new technologies, and increasingly interdependent stakeholder relationships encompassing their owners and investors, customers, suppliers, business partners and governments.

As a result, new risks and opportunities are emerging daily – and organisations need to adapt and evolve their business models equally quickly to keep pace. As they do this, they also need to explain clearly their reasons for adopting strategies, following actions and behaving in particular ways. This transparency typically needs to be in greater detail than ever before, to meet multiple stakeholders’ seemingly constant escalating demands for information.

Facing up to the erosion of trust

At the same time, organisations around the world – whether in the public or private sectors – are having to cope with another seismic shift in the business landscape: a decline in trust in institutions of all kinds, including governments and corporations. In particular, businesses – and the capital markets that sustain them – face a constant threat that unexpected issues will suddenly emerge, driving public trust to even lower levels.

Across the world, this has happened recently in sectors ranging from financial services to food to resources. The public, and in particular the media, are focusing on many issues. These range from allegedly unethical – albeit apparently perfectly legal – tax planning to ‘rewards for failure’ to reported market manipulation. These have combined to push trust to historic lows.

Together, this trust deficit and the intensifying pressure for transparency have created a ‘perfect storm’ for businesses.

There is a danger that transparency drives a blizzard of data, information and comment – to quote TS Elliot: “Where is the wisdom we have lost in knowledge? Where is the knowledge we have lost in information?” And we might add: “Where is the information that we have lost in data!”

Today, possibly more than ever, there’s a heightened risk that confusion, ignorance and misunderstanding can take over and that strategically important information may be lost or get buried. As one client commented at a PwC roundtable held recently in Europe for CEOs of major companies: “A big part of lack of trust is ignorance.” In other words, people can’t trust what they can’t see.

Why does trust matter?

Is trust really that crucial? In my view, the answer is a resounding yes. And the reason trust is so pivotal is that it’s the foundation of every human relationship, every transaction, every market. It speaks to integrity, reliability, confidence and honesty. To put it another way, where there’s no trust, there’s no truth – because nobody will believe anything. This is why building trust is at the heart of everything PwC Assurance stands for – a cause to champion, and a movement to inspire for the good of business and society as a whole.

It’s a cause that’s always been important – but which, because of today’s trust deficit, is now more vital than ever. Business does much good and contributes to societies all over the world. It creates jobs, growth and wealth. It pays wages and creates the profits from which tax revenues are generated and investment funded. It innovates to improve people’s lives. It builds infrastructure and communities. And it fuels and facilitates global trade, enabling countries to sell their own products and services and exchange them for different ones from across the world.

However, it takes a lot of effort to ensure that people don’t lose sight of these hugely positive impacts. Business today is often depicted not as benefiting society, but as selfishly pursuing its own interests, regardless of the costs to others. In some cases these perceptions may reflect genuine and well-founded concerns about specific instances of poor business behaviour. But we believe that, in many ways, today’s widely-held negative view of business is profoundly at odds with the genuine values and behaviours of the vast majority of people working in commercial – and indeed public sector – organisations.

The vital role of reporting...

Against this background, what lessons can organisations learn from recent trust crises? Perhaps the clearest of these is the need to focus their actions and behaviours on embedding the building and sustaining of trust at the very core of their corporate and business culture. And we believe that one of the imperatives to achieve this, and make it explicit externally, is to ensure stakeholders have a clear and accurate understanding of the purpose of a business, its behaviour and its impacts by providing relevant, insightful and reliable reporting.

This requirement puts the role of reporting and underpinning its reliability through audit and assurance – and therefore of organisations like PwC – centre stage. Through the services we provide, we help clients respond to the reporting needs of their investors and other stakeholders, who want transparent, reliable information about how companies create and sustain value. As a result, we believe we not only have an important role to play in building public trust, but also a responsibility to do so.

...demands a new model

Clearly, one of the tools at our disposal to help fulfil this responsibility is the current statutory reporting model, including the audit. However, we believe that this alone is no longer enough. In our view, the long-established regulatory reporting model now in place is no longer fit for purpose. This is why we’ve long challenged the current reporting environment, while advocating an evolutionary approach to improving its focus and widening its scope.

Why do we think the model is outdated? Essentially, it has failed to move with the times, remaining largely unchanged through a period when the way companies operate, and the factors that drive their success and the public’s perception of them, have changed dramatically. For example, intangible assets accounted for 17% of corporate value in 1975, compared to 81% today.

Such shifts demand new types of insight that are not addressed by the traditional intense focus on historical financial information and basic compliance data. Instead, investors and other interested parties now want more and different information – including wider, non-financial data on culture, values and behaviours – to help them decide whether an organisation is worthy of their trust. They want it to be comprehensive as well as focused, connected and coherent.

We aren’t suggesting throwing out the current reporting model wholesale. It continues to play a useful role, but it must change to meet these legitimate demands.

We are convinced, and independent research confirms, there is an important role for assurance and in particular the independent audit as part of this ‘fit for the 21st century’ reporting model. However, it is clear that the way in which auditors report also needs to evolve, maintaining a binary conclusion (clean/modified audit opinion) that we are told is so valued, but adding insight to help improve the users’ understanding of the information. The audit cannot and should not be looked at in isolation from the wider environment. Rather, it needs to operate as just one part of a complex financial and information system that bears collective responsibility for sustaining public trust.

Moving the debate forward

To help speed the evolution of the audit and its integration into a broader and richer information flow that sustains and builds trust, we’ve thrown our weight behind a wide range of initiatives.

In relation to the audit report, we are doing all we can to move forward regulatory initiatives by the International Auditing and Assurance Standards Board (IAASB), the Public Company Accounting Oversight Board (PCAOB) and others. You can expect to see that experimentation come to the fore over the next annual reporting season.

We’re helping to lead the debate within the global accounting profession on the future of the audit, through our engagement with regulators and standard-setters across the world, and communications such as our ‘World Watch’ newsletter and PwC US’s 10Minutes on essential business issues.

But the real key is to encourage and facilitate debate on issues of trust and reporting among multiple stakeholder groups, and understand what more is needed in order for trust to flourish.

By understanding more fully the dynamic of trust, we can lay down the foundations for successful efforts to reshape and improve reporting and rebuilding trust – providing a more robust basis for guiding our clients through its complexities. To read our research on the topic of trust, visit

Across the world, we’re investigating the link between reporting and trust for more and more clients. This enables us to provide them with research-led insights that help them understand and manage the levers that foster trust with different stakeholders, and to equip them with models that enhance the way they deal with and communicate on trust issues. And, we’ve expanded our Building Public Trust Awards, which celebrate and reward the best corporate reporting, from their initial focus on UK businesses to include an award for international companies worldwide.

We don’t pretend to have all the answers. But we’re helping people ask the right questions to develop collective insights and create a context for progress. Our network does not operate in a vacuum and it is critical that we have open and honest discussions with all of our stakeholders. The challenges that we face are similar to those of all market participants. We have never been more ready or willing to respond.


Engaging as a profession to boost bank transparency

The global financial crisis and related bank failures triggered widespread debate over the role of banks’ external auditors. Questions were raised such as:

  • How could banks require bail-outs only months after receiving clean audit opinions?
  • Could auditors do more to contribute to systemic risk identification?
  • Can bank accounting and disclosure be improved?

PwC has been at the forefront of the audit profession’s response to these questions, acting as joint leader of an initiative launched by the Global Public Policy Committee (GPPC). The GPPC is a forum where the big six global audit networks work together to address global public interest issues. The banking initiative seeks to identify ways in which auditors can help improve the stability of the financial system. It’s a great example of how we can engage constructively as a profession to build – and implement – better communications that enhance transparency and help guard against another crisis.

Three key focus areas

In fulfilling this role, the GPPC has focused on three priorities. First, improving communications between auditors and bank supervisors – creating a closer dialogue that leads to better-informed audits and supervisory decisions. We’ve helped develop protocols to achieve this in several countries, and are now engaged in discussions with supervisors at a global level to promote the concept more widely.

Second, auditor input to macro-prudential supervision. Audit networks acquire a lot of information on potential emerging risks, and can help supervisory bodies address possible risks earlier by sharing this knowledge with them. So the networks have set up a group of senior banking partners to discuss emerging risks and share the outputs with regulators.

Third, accounting and disclosure issues. The audit networks are participating actively in a multi-stakeholder working group set up by the Financial Stability Board to improve banks’ risk disclosures. This group – the Enhanced Disclosure Task Force (EDTF) – produced a comprehensive set of recommendations in October 2012, marking a major step forward in establishing best practice risk disclosures for the industry. In particular, the EDTF recommendations should give investors much better information around the liquidity and solvency of banks, two of the critical areas exposed in the financial crisis.

We are often asked what has changed as a result of the financial crisis and what have we learnt given our important public interest role in the reporting system? By working together, we believe the global audit profession is making a valuable contribution towards much earlier identification of future systemic problems.


Helping EDF Energy build customer trust in its range of ‘Blue’ products

The EDF Energy team

The UK is committed to using more low-carbon fuels to support global efforts to tackle climate change. It’s a commitment shared by EDF Energy, one of the largest energy suppliers to UK homes and businesses. EDF Energy has acted on its determination to reduce carbon emissions by creating a range of ‘Blue’ energy products, based on low-carbon generation from its nuclear power stations.

EDF Energy sees the benefits of nuclear power and wants its customers to do likewise. It believes a diversified energy mix will offer society an energy supply that’s secure, affordable and low carbon. It recently launched a range of ‘Blue’ products with tariffs based on low-carbon generation sourced from nuclear power stations. The idea was to help customers engage with the source of their electricity and be aware of the impact of their choices on carbon contribution and the future energy mix.

At a time when the public’s faith in the UK energy industry has been strained by concerns around pricing and service levels, EDF Energy turned to PwC UK because of our extensive industry experience and strong track record in environmental reporting.

Our role was to evaluate EDF Energy’s procedures and controls to make sure it met its commitment to customers to match their energy supply to nuclear-sourced generation. We tailored our traditional financial audit methodology to fit this entirely new area and applied the framework provided by the International Standard on Assurance Engagements (ISAE 3000) and the Institute of Chartered Accountants in England & Wales’s (ICAEW) Code of Ethics, to design an assurance approach that considered how the concept of materiality could apply to a promise that was either kept or broken.

Sid Cox, EDF Energy Business 2 Business Director, sees the value in the project: “The processes underpinning these products are extremely innovative and complex. So the role of the external assurance provided by PwC, in simply conveying the rigour with which the products are delivered, was a critical component of the work and has played an important role in its success.”

The PwC UK performance assurance leader, Richard Porter, and his team spent 12 months working with marketing, operational and legal teams at EDF Energy to create the vision of how the assurance would work and how it would be shared with customers on the EDF Energy website.

Richard says: “This is a stand-out example of a major energy supplier – or any business for that matter – recognising the potential that building trust with their customers has.”


Constellium – Creating value through connectivity, relationships and the right team of experts


Constellium is a global manufacturer of aluminium products with a vast portfolio of metal-based solutions for the packaging, automotive and aerospace industries.

In January 2011, Rio Tinto sold part of its engineered products division to private equity house Apollo, leading to the creation of the Constellium Group. Constellium is based in the Netherlands, has operational headquarters in Paris and Zurich, and a further 26 manufacturing sites across Europe, the US and China.

In May 2013, Constellium floated on the New York Stock Exchange and the professional segment of NYSE Euronext Paris, raising US$367 million.

Given the complex structure and financial history of the company, five PwC firms were involved and four business units were engaged to work with Apollo and Constellium. Our services to Constellium started early, from before its acquisition by Apollo through to the IPO process; and they continue now as we support it in its life as a public company.

Our strong internal networks, external connections and collaborative approach mean that we have been able to contribute expert knowledge on a local and global scale, helping both Apollo and Constellium successfully achieve their goals.

Vivienne Maclachlan, Director in the PwC UK Capital Markets team, said: “It has been exciting and exhilarating to see this company grow, develop and now report as a public company, especially in the timescale of only 28 months after inception.”

Didier Fontaine, Constellium CFO, said: “Constellium is a new company with the aim of being both a global player and the leader in our field. The objective of a dual listing less than two-and-a-half years after its creation has been a real challenge. In PwC we have chosen to work with the right organisation to make it happen. The global network and high quality standards of PwC have been key in the accomplishment of this goal.”