Information sharing for better transparency

Network arrangements and member firms
In most parts of the world, the right to practise audit and accountancy is granted only to firms that are majority-owned by locally qualified professionals. PwC is a global network of separate member firms, operating locally in countries around the world. PwC firms are members of PricewaterhouseCoopers International Limited and have the right to use the PricewaterhouseCoopers name.

As members of the PwC network, PwC firms share knowledge, skills and resources. This membership enables PwC firms to work together to provide high-quality services on a global scale to international and local clients, while still taking advantage of being local businesses, knowledgeable about local laws, regulations, standards and practices.

PricewaterhouseCoopers International Limited
PricewaterhouseCoopers International Limited (PwCIL) is a UK private company limited by guarantee in which PwC firms are members. PwCIL does not practise accountancy or provide services to clients. Instead, it acts as a co-ordinating entity for PwC firms. PwCIL works to develop and implement policies and initiatives that create a common and co-ordinated approach for PwC firms. PwCIL focuses on key areas such as strategy, brand, and risk and quality.

PwC firms can use the PwC name and draw on the resources and methodologies of the PwC network. In return, member firms are required to abide by certain common policies and the standards of the PwC network.

Global Board
The Board, which consists of 18 elected members from 13 countries, is responsible for the governance of PwCIL, oversight of the Network Leadership Team and approval of network standards. The Board does not have an external role. Board members are elected every four years by partners from all PwC firms, with the current board taking up office in April 2009.

Board members may serve a maximum of two terms of four years each. The Board meets four times a year and on further occasions as required.

Network Leadership Team
The Network Leadership Team (NLT) sets the overall strategy for the PwC network and the standards to which PwC firms agree to adhere.

The NLT is made up of the Chairman of the PwC network; the senior partners of the US, the UK and China member firms; and a fifth member appointed by the Board, currently the senior partner of PwC Germany. The Chairman of the PwC network and the fifth member may serve on the NLT for a maximum of two terms of four years each in their respective capacities. The terms of the other NLT members are limited by the arrangements in their respective firms. The NLT typically meets monthly and on further occasions as required.

Strategy Council
The Strategy Council, which is made up of senior partners of the largest PwC firms and regions, agrees the strategic direction of the network and facilitates alignment for the execution of strategy. The Strategy Council meets on average four times a year.

Network Executive Team
The Network Executive Team is appointed by, and reports to, the Network Leadership Team. Its members coordinate key aspects of PwC’s Assurance, Advisory and Tax offerings, and functional areas such as Risk and Quality, Human Capital, Operations, Public Policy and Regulatory Affairs, and Brand and Communications across the PwC network.

As members in the PwC network, PwC firms are required to implement the agreed-upon common standards and policies of the PwC network. Every PwC firm is responsible for its own risk and quality performance and, where necessary, for driving improvements.

Each PwC firm is also exclusively responsible for the delivery of services to its clients.

To support transparency and consistency, each PwC firm’s Territory Senior Partner signs an annual confirmation of compliance with certain standards. These cover a range of areas, including independence, ethics and business conduct, Assurance, Advisory and Tax risk management, governance, anti-bribery and data protection and privacy.

These confirmations are reviewed by others who are independent from the PwC firm in question. Member firms are required to develop an action plan to address specific matters where they are not in compliance; such action plans are reviewed and execution of the plan is monitored.

There are some common principles and processes to guide PwC firms in applying the network standards. Major elements include:

• the way we do business
• sustainable culture
• policies and processes
• quality reviews

The way we do business
PwC firms undertake their business activities within the framework of applicable professional standards, laws, regulations and internal policies. These are supplemented by a PwC Code of Ethics and Business Conduct for their partners and staff.

PwC people have an obligation to know, understand and comply with the guidelines contained in the Code as well as the values – Excellence, Teamwork and Leadership – on which the guidelines are based.

Sustainable culture
To promote continuing business success, PwC firms nurture a culture that supports and encourages PwC people to behave appropriately and ethically, especially when they have to make tough decisions.

PwC people have ready access to a wide array of support networks within their respective firms – both formal and informal – and technical specialists to help them reach appropriate solutions. The foundation of PwC’s culture is objectivity, professional scepticism, cooperation between PwC firms and consultation.

Policies and processes
Each PwC firm has its own policies, based on the common standards and policies of the PwC network. PwC firms also have access to common methodologies, technologies and supporting materials for many services.

These methodologies, technologies and content are designed to help a member firm’s partners and staff perform their work more consistently, and support their compliance with the way PwC does business. Each client engagement leader is responsible for assigning partners and staff to a particular engagement and building the appropriate combination of professional competence and experience.

Quality reviews
Each PwC firm is responsible for monitoring the effectiveness of its own quality control systems. This includes performing a self-assessment of its systems and procedures and carrying out, or arranging to have carried out on its behalf, an independent review.

In addition, the network monitors PwC firms’ compliance. This includes monitoring not only whether each PwC firm conducts objective quality control reviews of all of its services, but also includes consideration of a member firm’s processes to identify and respond to significant risks.

In accordance with applicable regulatory requirements, each firm may also be reviewed periodically, in some cases annually, by national and international regulators and/or professional bodies.

For Assurance work, there is a specific quality review programme based on relevant professional standards relating to quality controls including International Standard on Quality Control 1: ‘Quality Control for Firms that Perform Audits and Reviews of Historical Financial Information, and Other Assurance and Related Services Engagements’ (‘ISQC1’) and where applicable the PCAOB Quality Control Standards.

The overriding objective of the assurance quality review programme is to assess for each PwC firm that:

• quality management systems are appropriately designed, are operating effectively and comply with professional network standards and policies
• engagements selected for review were performed in compliance with applicable professional standards and PwC Audit requirements, and
• significant risks are identified and managed appropriately.

A member firm’s assurance quality review programme is monitored, as is the status and effectiveness of any quality improvement plans a PwC firm puts in place.

Policy and resourcing
Objectivity is the hallmark of our profession, at the heart of our culture and fundamental to everything we do. Independence underpins objectivity and has two elements: independence of mind and independence in appearance.

PwC firms reinforce both of these elements through a combination of setting the right tone from the top; independent consultation on judgemental issues; detailed policy requirements including prescribed processes to safeguard independence; regular training; and careful observance of independence requirements.

PwC’s Global Independence Policy – based on the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants – contains minimum standards with which PwC firms have agreed to comply.

These relate to assurance clients, including the adoption of processes and safeguards designed to maintain independence from such clients.

PwC firms impose supplementary independence restrictions and processes by reference to local regulatory and ethical requirements, when necessary. Details of any such requirements with cross-border effect are communicated throughout the network.

Each PwC firm is required to have a partner responsible for independence matters, supported by adequate and trained resources, to support the relevant member firm and its people in complying with policy requirements. This includes providing a resource to consult on policy interpretations and practice matters.

Training
Training programmes on the PwC Global Independence Policy and related independence processes are available to all PwC firms. These include the requirements around personal behaviour, services that may and may not be provided to audit clients, and business relationships.

Each PwC firm is responsible for developing and implementing an appropriate annual independence training for its partners and practice staff, making appropriate use of global materials, supplemented with additional content tailored to reflect local requirements.

The Assurance, Tax and Advisory lines of service also provide training and other materials dealing with independence considerations related to the provision of non-assurance services. New joiners, irrespective of which PwC firm and part of the practice they join, receive training on the PwC Global Independence Policy.

Compliance
Our compliance processes rely on a combination of business activities and monitoring systems.

Our network has detailed policies and processes to evaluate the potential impact of a proposed service on the reporting PwC firm’s independence.

PwC firms are required to obtain authorisation from the lead audit engagement partner regarding the provision of non-audit services to entities on the ‘Independence List’. Authorisation is only given after careful analysis of whether the service could impair the reporting firm’s independence by reference to policy requirements, including an evaluation of threats to independence and available safeguards.

Partners and client-facing managers in all PwC firms are also required to record the details of their investment portfolios on a sophisticated confidential database that provides real-time monitoring of the permissibility of investments held against an ‘Independence List’ of prohibited securities.

Joint business relationships are evaluated for any threats to independence, and are required to be approved, recorded and regularly monitored for changes that may impact the independence assessment.

As well as these and other compliance-monitoring systems, PwC firms operate a number of confirmation and verification processes, such as:

• annual compliance confirmations by partners and practice staff, and
• inspection and compliance-testing programmes at firm and engagement levels. Such inspections look at, among other things, compliance with the requirements relating to partner rotation and partner compensation

PwC firms are required to have disciplinary policies and mechanisms that promote compliance with independence policies and processes, and to report and address any breaches of independence requirements which, even with the control processes outlined above, may occasionally occur.

This would include, where appropriate, discussion with the client’s audit committee regarding an evaluation of the impact of the independence issue and the need for safeguards to maintain objectivity. Although most breaches are minor and attributable to an oversight, breaches are taken seriously and investigated as appropriate.

An essential element of PwC’s ethos is a set of common principles for remuneration of partners in PwC firms, based on partner performance and quality of work.

Under these principles all PwC firms’ partner remuneration systems should reward partners based on three core elements:

• the role they are asked to play in the partnership
• the quality of their work
• how well their individual firm performs as a whole.

The underlying premise of the partner income philosophy is to encourage, recognise and reward partners, both as individuals and as members of teams, based on their contribution to their respective firms. Quality is the most important measure in assessing a partner’s contribution.

The successful execution of PwC firms’ partner income arrangements, including delivery of actual rewards, hinges on a balanced scorecard evaluation against individual and team objectives. The performance-rewards structure respects the regulatory environment in which PwC firms operate, and each PwC firm maintains and operates its own compensation system for its partners and staff.

Leadership remuneration
The processes for evaluating and setting the remuneration of the Network Leadership Team (NLT) and Network Executive Team (NET) are led by the Global Board and the NLT, respectively, working with the PwC firms concerned. They follow the same principles as those applying to other partners in their respective member firms.

While the primary factors in setting target remuneration are the market and practices of each individual’s member firm, the process takes appropriate account of the scope and importance of NET and NLT members’ responsibilities and contribution across the network.

The PwC approach to learning and education (L&E) is to provide access to a wide curriculum of courses developed in accordance with global standards, while also providing support for PwC firms’ L&E leadership and fostering personal accountability for continuous education.

PwC firms are committed to delivering quality audits around the world. To help them do this, a consistent curriculum gives their Assurance practitioners, as well as specialists in Advisory and Tax who provide audit support, access to courses covering:

• the PwC audit approach and tools
• updates on audit as well as independence and accounting standards and their implications
• areas of audit risk and engagement quality.

Courses are developed using best-practice learning techniques, designed to meet the needs of practitioners.

Training solutions are designed to develop and reinforce professional judgement, scepticism, and technical and professional excellence to achieve quality in everything PwC firms and their professionals do. There are focused programmes for people with special roles, or who serve clients with unique characteristics. These individuals include:

• Quality Review Partners
• people leading multi-location audits or engagements with shared service centres
• those serving clients around the globe who are listed on US stock exchanges

Our focus in the past year has been on continuing to enhance and develop our curricula in response to findings from internal quality reviews and external regulatory reviews as well as needs identified by practitioners.

As well as focusing on ‘what’ PwC people learn, it is just as critical to consider ‘how’ they do it. A large part of how people learn comes from on-the-job experiences.

PwC firms provide guidance, tools and forums for staff to share their experiences in order to support them on the job. We also believe that we learn from others, whether by receiving and discussing feedback, or by observing and working with others.

The remainder comes from formal learning. Formal learning solutions vary in methods, and include webcasts presented by specialists, computer-based e-learning using videos and avatars, and classroom courses that give practitioners the opportunity to sharpen their professional judgement by sharing insights and experiences with their instructors and peers.

To make sure that L&E programmes are effective, PwC training programmes are evaluated continually using assessments for a number of milestone programmes as well as surveys of partners and staff in PwC firms to see how well they have been able to transfer their learning into the workplace.

With some 180,000 people across the member firms in the PwC network, the task of providing continuous education throughout each professional’s career is a major challenge.

Mechanisms have been put in place at all levels – individual, firm and network – to help achieve this goal. PwC firms’ L&E leaders are responsible for reporting their training plans for the year and their actual delivery of training to the target audience for each programme at year-end.