Risk and governance

Global Annual Review 2020

Being open about how the PwC network is organised and governed and the high standards that we expect all member firms across the world to follow, is important to us.

In the following section you can read about:

  • PwC network legal structure, leadership and governance

  • Network standards, policies and monitoring compliance

  • The way we do business and Codes of Conduct

  • PwC’s approach to risk identification and mitigation

  • PwC’s approach to anti-corruption

  • PwC’s approach to anti-money laundering

  • Complaints and allegations

  • Managing independence 

  • Partner remuneration

Legal structure, leadership and governance

Network structure and member firms

In many 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 firms, operating locally in 155 countries around the world. As of 30 June 2020, the PwC network has 630 client-facing entities. The partners in each firm elect a Territory Senior Partner to lead that firm for a fixed term. The length of this term, and the maximum number of terms that any Territory Senior Partner can be elected is set by each member firm.

PricewaterhouseCoopers International Limited

PwC firms are members of PricewaterhouseCoopers International Limited (PwCIL), a UK private company limited by guarantee that acts as a coordinating entity for member firms. PwCIL does not practise accountancy or provide services to clients. It works to develop and implement policies and initiatives to create a common and coordinated approach for member firms in key areas such as strategy, brand, and risk and quality.

Member firms have the right to use the PwC name and draw on the resources and methodologies of the PwC network. In return, member firms are required to comply with common policies and standards. Each member firm pays a service charge to the PwC network to fund network costs.

As members of the PwC network, PwC firms share knowledge, skills and resources. This membership facilitates member firms to work together to provide quality services on a global scale to international and local clients, while retaining the advantages of being local businesses – including being knowledgeable about local laws, regulations, standards and practices.

Network Leadership Team

The Network Leadership Team (NLT) sets the overall strategy for the PwC network and the standards to which member firms agree to adhere. The NLT is made up of the Global Chairman of the PwC network, the Territory Senior Partners of the China, the UK and US member firms, and a fifth member appointed by the Global Board, currently the Chairman of PwC Europe. The Global Chairman of the PwC network and the fifth member may serve for a maximum of two terms of no more than 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 three times a month and on further occasions as required.

Strategy Council

The Strategy Council, which is made up of the Territory Senior Partners of the 21 largest member firms and regions, agrees on the strategic direction of the network and facilitates alignment for the execution of strategy. The Strategy Council is expected to meet at least quarterly. In FY20 the Strategy Council met 11 times (FY19: 11). 

Global Leadership Team

The Global Leadership Team (GLT) is appointed by, and reports to, the NLT. Its members are responsible for leading teams drawn from PwC member firms to coordinate and lead PwC’s activities across all areas of the business. The GLT typically meets monthly and on further occasions as needed.

Article image

Global Board

The Board of PwCIL, which consists of 18 elected members, is responsible for the governance of PwCIL, oversight of the NLT, and approval of network standards. Each of the 18 members are full-time partners of PwC member firms around the world. Of the 18 board members, six are female.

Board members are elected every four years by partners exercising their votes through their member firms. The current Board, with members from 13 countries, took up office in April 2017. Board members may serve a maximum of two terms of four years each. For five Board members, this is their second term. Seven Board members currently serve as chair of their member firm’s governance body, providing strong alignment on matters of strategy, quality and execution amongst member firms.

The Board currently has five standing committees: the Governance Committee, Clients and Markets Committee,  Technology and Innovation Committee, Risk, Quality and Public Interest Committee and the Operations Committee. The Board may establish other committees from time to time. Below is a summary of each Committee’s focus areas.

 

Committee
Committee focus areas
Governance
  • Network governance and leadership matters, including succession planning
Clients & Markets
  • Relationships (including clients, joint business relationships) and markets
  • Portfolio of services (including delivery models)
  • Brand positioning
Technology & Innovation
  • Technology and innovation strategy, enablement and execution
     
Risk, Quality & Public Interest
  • Public Interest and stakeholder matters
  • Enterprise-wide risk management and legal matters
  • Network Standards, ethics & compliance and policies
Operations
  • Finance and operations including network investments and performance
  • People, including up-skilling, culture and Values

During FY20, the Board met 12 times, either in person or virtually. Collectively, the Board’s committees met 36 times, either in person or virtually. 

Governance Boards in Member Firms

All member firms are required to have a separate local governance body to oversee the performance of the firm’s leadership and to provide direction and guidance.  While traditionally these governance boards have been made up of partners from that firm, increasingly external independent people are joining these boards or member firms are setting up additional advisory bodies made up of external independent members. This is good practice and we are encouraging its wider adoption across member firms in the PwC network.  For example the majority of the Strategy Council firms either have, or are taking steps to have, some form of independent oversight, either in the form of external governance board members or advisory bodies. PwC US currently has three independent non-executive directors on its Board and PwC UK has five independent non-executive directors on its Public Interest Body

Transparency

Many PwC member firms publish annual transparency reports disclosing information relating to legal structure and ownership, governance structure, internal quality control system, quality assurance, education and independence practices, audit revenue, and partner remuneration. To read transparency reports for PwC member firms click here.

Network standards and policies

PwC Network member firms are required to comply with standards over ten areas:

Strategy and alignment:  Each member firm shall implement a strategy which is aligned with the PwC network’s strategy and implement the strategic initiatives set out by PwC’s NLT.

Investment: Each member firm shall annually invest a percentage of its net revenues to fund investments, at levels to be agreed annually with PwC’s NLT. Investments are used to fund, amongst other things, enhancements in quality, risk management, technology developments and acquisitions.

Technology: Each member firm shall implement the network technology strategy including specific policies on information security and data protection.

Quality:  Each member firm shall establish business processes that promote and facilitate the delivery of quality services and comply with all applicable PwC network and professional standards and requirements, including having processes in place to enable firms to provide quality services in a manner that meets relevant stakeholder expectations and member firms only accept clients and undertake engagements that are consistent with PwC’s network risk management policies.

Brand:  Each member firm shall consistently reflect the attributes of the PwC Brand, including brand positioning, brand personality and visual identity, in all external and internal activities and messages.

Governance: Each member firm shall have an oversight function, independent from management, which practices continuing good governance.

Enterprise Risk Management:  Each member firm shall establish an enterprise risk management programme and integrate this within its business operations and perform an enterprise wide risk assessment which identifies and prioritises the components of enterprise-level risk, and develops specific action plans to mitigate each identified risk. (See below for more detail).

People: Each member firm shall put in place an appropriate strategy, policies, processes and systems to attract, retain and develop a diverse group of people of the quality needed to deliver services and operate its business.

Ethics & Compliance: Each member firm shall embed a strong culture of ethics and business conduct in its people and in the way they conduct their business including training for all new joiners in ethics and compliance and annual training and assessment for all employees. (See more detail on ethics and compliance below).

Independence: Each member firm shall establish systems, policies and procedures designed to ensure that the firm and its people comply with independence laws and regulations, including PwC minimum requirements and policies. (See more detail on independence below).

In addition to the common standards and policies of the PwC network, PwC member firms also have access to common methodologies, technologies and supporting materials for many services.

These methodologies, technologies and materials are designed to help member firms, partners and staff perform their work more consistently, and promote quality while supporting their compliance with the way PwC does business.

Article image

Monitoring compliance with network standards and policies

By PwC member firms: Each member firm is required to monitor its controls and the effectiveness of its quality management systems in a manner appropriate to the level of risk in its environment, in particular whether the policies and procedures which constitute its system of quality management are designed appropriately and operating effectively to provide reasonable assurance that its work is performed in compliance with laws, regulations and professional standards. This includes performing annual risk assessments and action plans, reviews of the PwC member firms’ systems and procedures, transaction testing where appropriate, and reviews at the individual engagement level across each line of service. 

At the network level: Each year, PwC firms use a single common technology platform to confirm their compliance with the network standards. The platform enables member firm controls to be reviewed centrally, testing requirements to be established, and evidence to be collected:

  • Each year every member firm must complete an annual self-assessment of its compliance with network standards and related policies, procedures and controls and confirm whether it is in compliance with the requirements of the standards. The member firm must support its self-assessment with appropriate evidence
  • As part of the self-assessment, a senior partner or principal of the member firm is required to sign a confirmation as to whether the member firm was in compliance, in all material respects, with each network standard. The senior partner also commits to addressing any remedial actions identified as a result of the self-assessment. To address specific matters where process improvements are needed, action plans are prepared, reviewed and their execution monitored
  • Each self-assessment is independently evaluated by a core team of specialists and feedback is provided to the member firm, where appropriate. Where a member firm is unable to adequately confirm compliance, in all material respects, with the standards, it is required to implement a remediation plan. The member firm's progress against its remediation plan is monitored

All member firm partners and staff are also required to complete individual annual compliance confirmations indicating their understanding of, and compliance with, those policies which are applicable to them.

Network Review Programme: In addition to the monitoring of network standards described above, the Network Review Programme (NRP) coordinates and facilitates network-wide reviews that are sponsored/requested by global leadership. These reviews provide for the assessment of member firm maturity and/or compliance with network standards as well as other thematic type reviews of functional areas. The programme is determined annually and is flexible in order to serve the evolving needs of the network and network leadership.

The NRP plays an important role in network monitoring including:

  • Supporting forward progress on network priorities, including progress on and compliance with network standards, in line with the development and execution of the network’s strategy

  • Providing an overarching framework for all network-wide reviews, enhancing consistency, transparency and identifying overlaps and interdependencies

  • Assessing network risk assumptions and supporting mitigation measures for identified network risks

  • Providing a more holistic understanding of themes and issues across the network and within individual member firms

The way we do business and Codes of Conduct

PwC member firms undertake their business activities within the framework of applicable professional standards, laws, regulations and internal policies. They also nurture a culture that supports and encourages PwC people to behave appropriately, with integrity 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 PwC Code of Conduct (the ‘Code’) is applicable to all partners and staff in the PwC network. It does not provide detailed guidance on every situation where PwC partners and staff might need to answer the question, “what is the right thing to do?” Instead, being principle-based guidance, it is designed to help PwC people think about difficult questions, promote consultation, and encourage speaking up where concerns arise.

The Code also describes a common set of expectations and a key element is abiding by applicable laws and regulations. If any local law or regulation is more restrictive than the Code, local law or regulation governs.

Each member firm has the obligation to comply with network standards and policies which complement the principles embodied in the Code. Certain sections of the Code are reinforced by PwC’s ethics and compliance standards, network risk management policies and local supplemental policies, which seek to address local legislation, regulation and risks. We expect the same standard of behaviour from those organisations who work with member firms. Third parties are required to regularly confirm their compliance with the PwC Third Party Code of Conduct or its equivalent.

Tax - It is a general principle that taxpayers have a right to manage their tax affairs provided they act within the law. Equally they should also be able to access independent advice on their tax position. However, the dynamic and complex nature of tax laws - both at a national and international level - is such that it is not always clear where lines should be drawn. To help our clients and our people make informed decisions on tax, taking into account the relevant considerations, the member firms of the PwC network act according to the following Global Tax Code of Conduct.

Conflicts of interest

Given the broad nature of our operations and the many clients that we serve, PwC frequently faces the risks of potential conflicts of interest. We take any potential conflict very seriously and if a conflict is identified, we take timely steps to resolve or remove it. Member firms maintain internal controls and processes to identify potential conflicts and comply with relevant regulations. We also have in place programmes intended to reinforce the need to act in accordance with the PwC Code of Conduct and frameworks for ethical decision making at both a member firm and network level. We understand that there is a greater risk of conflict, or a perception of such by our stakeholders in some key areas.  We’ve created separate principles to deal with these.

Working with Government - PwC has put in place a set of principles that our network expects to be followed by all firms when hiring a former government official or when someone from PwC takes a senior post in government. When we refer to government in this instance, it covers not only organisations regarded as strictly governmental, but also organisations that regulate or have public oversight of the professional services that we provide.

Principles 

When we recruit staff from governments and related agencies or when our people leave to join those organisations, our principles are:

  • When Government Officials join PwC, we uphold any professional restrictions the government or the law imposes on them. Where there are no rules, we put appropriate restrictions in place

  • When Government Officials join PwC they do not represent us in front of those government bodies they previously represented for a period of at least one year or for a longer period if prescribed by the government

  • When a senior PwC person joins a body that has regulatory oversight of PwC and our practitioners, we advise the body of any ongoing financial interest they have in PwC (e.g., pension arrangements), and ask that the individuals are not involved in making decisions about PwC for at least one year and until that financial interest concludes

  • We take steps to request retired partners advise us prior to accepting appointments with any government body or regulatory agency so we can uphold the practice outlined in the point above

There will be differences in how these principles apply to local circumstances for our member firms as local laws or regulations could override the principles or provide additional requirements with which a member firm must comply. However, we expect member firms to have a common minimum approach in line with these principles.

PwC’s approach to risk identification and mitigation

The Board of PwCIL provides oversight, review and approval of the Network Enterprise Risk Management (ERM) approach and focus. The Risk, Quality and Public Interest Committee is responsible for the monitoring of key risks and responses.

The NLT provides strategic direction (including in the area of ERM). The responsibility for network risk management, including ERM, has been delegated to the Chief Risk Officer (CRO).

The Global Leadership Team has ownership of certain risks and sets guidelines for associated compliance and monitoring. This includes Line of Service leaders who have responsibility for their Line of Service Quality Management Systems.

The Network Risk Council provides strategic direction and advice to network risk management strategy, including consideration of strategic risks and input to the network ERM programme. The Network Risk Council comprises the Global Markets leader, CRO, the Chief Operating Officer (COO), Global General Counsel, Chief Ethics & Compliance Officer, Global Clients and Industries leader, Purpose, Policy & Corporate Responsibility leader and the Head of Global Security.

The PwC network and member firms operate a rigorous approach to Enterprise Risk Management. Those risks with the highest potential impact for the PwC network are identified annually. These Key Network Risks and their related significant mitigation plans are reviewed by the Global Board and specifically its Risk, Quality & Public Interest Committee.

The current Key Network Risks are:

Quality & Compliance:

  • Client & Service quality: Failure in client acceptance or continuance, or management of service delivery quality in existing and new services with cross border and network implications

  • Compliance: Failure to manage and comply with legal or professional requirements, including local policies and standards leading to regulatory action and/or significant conflicts of interest

  • Independence: Failure to comply with external independence requirements and manage the ongoing complexity and changes in independence regulations, against a growth agenda in new areas and changing expectations

  • Significant matters: Failure to respond appropriately and with speed to a significant issue in a member firm with network implications, whether security, technology or client related

  • Regulatory/Public Policy changes: Risk of a regulatory change that would hamper our ability to operate in a sustainable way

  • Data strategy & management: Failure to manage and maintain firm or third party data with the highest compliance & regulatory standards

  • Information & Cyber security: Failure to manage security of firm or third party information causing legal, reputational and brand damage to the network

Network Resilience:

  • Black Swan & Green Swan Events: Failure to prepare for market events with network wide implications which require an immediate response, such as a regulatory event or a macroeconomic disruption like a pandemic. Failure to prepare for environmental events with network wide implications in terms of immediate response, reputational damage and potential macroeconomic impact

  • Member Firm Resilience: Failure of a significant member firm to withstand a shock whether economic, regulatory or political, or inadequate contingency planning. This risk has clearly been an area of focus as a result of COVID-19

  • Technology Resilience & Availability: Failure to manage critical system availability impacting ability to service clients and manage the business

  • People: Failure to adequately plan for workforce related changes such as automation, to attract, retain and train the appropriate talent and to ensure resources can be deployed rapidly to meet opportunities. In recent months, this has included the need to respond to the health emergency, the need to adopt different virtual and socially distanced business practices and the challenges of ensuring a successful ‘return to office’ strategy

Market Risks: 

  • Technology enabled disruption: Failure to respond to, and prepare for, disruption, including getting new services and solutions to the market with speed and agility

  • Strategic execution: Failure to ensure relevance and meet client expectations

  • Investment: Failure to ensure sufficient investment in future growth areas and reinvestment in existing services

Societal and Trust:

  • Societal and trust: Failure to anticipate and respond to market and societal expectations or engage in the broader societal agenda

  • Purpose, values & behaviours: Failure to adopt and live our values 

Network Mutuality and Speed of Response:

  • Network mutuality/ alignment: Failure of member firms to act collaboratively caused by conflicting regional and national priorities in the external environment

  • Speed of response to change: Failure of member firms to execute multiple priorities simultaneously 

PwC’s network standard on Enterprise Risk Management requires each member firm to develop an ERM programme with roles and responsibilities for identification, prioritisation and mitigation of enterprise-level risks. This programme identifies the most significant risks which could impact the member firm, using the Key Network Risks as a major input.  For every risk identified, each member firm is required to assess the probability of the risk occurring, its potential impact and whether the risk is operational, forward looking or emerging.

Article image

PwC’s approach to anti-corruption 

Corruption is at the centre of some of the world’s pressing problems including terrorism and government instability. PwC is opposed to corruption in any form and recognises the importance of making smart choices when it comes to its business relationships. We think carefully about our actions to avoid engaging in or facilitating bribery, corruption, money laundering, and/or terrorist financing activities.

The PwC standard on ethics & compliance specifically sets out how member firms are expected to identify and mitigate the risk of bribery and corruption in their activities. It is consistent with the principles of the UK Bribery Act 2010 and the U.S. Foreign Corrupt Practices Act, as these two laws have far reaching effects on PwC and our clients across the world. 

The standard requires each member firm to establish systems, policies and procedures for the prevention of bribery and corruption. The standard sets out specific requirements for each member firm including:

  • appointing an experienced individual who, with appropriate leadership oversight, is responsible for implementation of the requirements of this standard

  • annually preparing an anti-corruption risk assessment to evaluate (a) the level and type of corruption risks the firm faces and (b) the firm’s policies and procedures in place to comply with this standard and/or to respond to local corruption risks

  • training all personnel (including new joiners) annually on the PwC network and local anti-corruption policies and guidance

  • taking steps to identify and resolve any departures from or violations of PwC network and local policies on anti-corruption and

  • annually undertaking monitoring to assess compliance with this standard and PwC network and local policies and guidance, and resolve deficiencies, where identified

The standard also sets out the requirements for every partner and member of staff. It is clear that engaging in corrupt practices is not acceptable behaviour. Specifically partners and staff in member firms must not:

  • engage in bribery or any other corrupt practices, including the giving/receiving of preferential treatment that may be perceived as a bribe

  • solicit, accept, offer, promise or pay a bribe or improper payment, either directly or through a third party. This includes so-called “facilitating payments” or “facilitation payments”

Supplementary detailed policy and guidance provides practical and detailed explanations to explain difficult concepts such as what may constitute a bribe or corrupt behaviour and what is considered a ‘gift’ or other preferential treatment. Each member firm is required to have established a reporting procedure for any partner or staff member to disclose if they have unwittingly been involved in any activity which may have contravened this standard. 

Member firms have an obligation under the network standards to provide both new joiner and annual training on anti-corruption. Each year, all PwC member firm partners and staff are required to sign a personal annual anti-corruption compliance confirmation. 

PwC’s approach to anti-money laundering

We demonstrate our integrity by knowing the identity of our clients and others with whom we do business, and adhering to applicable standards on anti-money laundering. Where we suspect criminal behaviour, we take appropriate action.

The PwC standard on ethics & compliance also sets out how PwC member firms may mitigate the risk that they inadvertently become involved in actual or potential money laundering activities.  As most legislation on anti-money laundering is based on the Financial Action Task Force recommendations as a baseline, the PwC standard is consistent with these and the risk based approach guidance for accountants.

The standard requires each PwC member firm to establish systems, policies and procedures to mitigate the risk of being, directly or indirectly, involved in money laundering or terrorist activity. It sets out specific requirements for each PwC member firm including:

  • appointing an experienced individual who, with appropriate leadership oversight, is responsible for implementation of the requirements of the standard

  • annually carry out a money-laundering risk assessment to confirm that they have in place policies and procedures which respond to (a) local money laundering/terrorist financing risks; and (b) to the requirements of the standard

  • developing and implementing a money laundering action plan which addresses anti-money laundering risks identified in the risk assessment and the goals of the standard and

  • training new personnel on the anti-money laundering policies and procedures

The standard also sets out the core prohibitions and requirements for every partner and member of staff. It is clear that engaging in money-laundering practices is not acceptable behaviour.  Specifically partners and staff in member firms:

  • do not provide any service, or enter into any business relationship, that could constitute them or a firm being involved in direct or indirect money laundering activities and

  • establish their client’s identity (including the identity of any ultimate beneficial owners)

Supplementary detailed policy and guidance provides practical and detailed explanations that fully explain concepts such as when to do the checks and what to look for. Each member firm is required to have established a reporting procedure for any partner or staff member to report any knowledge or suspicion of money laundering. 

Complaints and allegations 

The PwC Code of Conduct and behaviours we seek to reinforce are brought to life in numerous ways for our people, including formal training, leadership programmes emphasising a ‘Speak up Culture’ and ‘Respect at Work’, and in our day-to-day work and handling of complaints and investigations.

Speak up. Speaking up is crucial to our culture at PwC – it is a living example of our values and an essential first step. Speaking up when something doesn’t seem right demonstrates integrity and that we have the courage to do the right thing. It helps to prevent mistakes and misconduct and fosters innovation. Speaking up also shows that we care about each other and our business. And it helps us live up to our commitment to deliver quality outcomes. Everyone within PwC  – no matter what their level or role – is empowered to speak up when dealing with a situation that doesn’t seem right. Each has a responsibility to report and express their concerns.

Each member firm in the PwC network provides a mechanism to report issues, which is available both internally and externally. There is also a confidential global ‘Contact Us’ email option on pwc.com/codeofconduct which is available to anyone who may have concerns to report at both PwC and beyond.

Listen up. Listening and collaboration means we consult with our colleagues so that concerns are heard and addressed in an open and professional manner. We consult with our supervisors, coaches, ethics teams and human capital representatives. They are responsible for addressing and escalating as necessary the issues brought to their attention.

Follow up. For any allegation, complaint, or concern, we investigate and address the situation in an appropriate way. If a concern is reported, it will be handled with appropriate confidentiality and discussed with others only as needed. Disciplinary action is taken as appropriate and in accordance with established accountability frameworks in each member firm.

Non Retaliation. PwC is committed to protecting our people against retaliation. Retaliation is serious misconduct that will not be tolerated, and any PwC professional, whether a member firm partner or staff, who takes retaliatory action will be held accountable.

Managing independence 

As auditors of financial statements and providers of other types of professional services, member firms and their partners and staff are expected to comply with the fundamental principles of objectivity, integrity and professional behaviour.

In relation to assurance clients, independence underpins these requirements. Compliance with these principles is fundamental to the role we play in the capital markets and serving our clients.

The PwC policies on independence and related processes are based on ISQC1, issued by the International Accounting and Auditing Standards Board, the Code of Ethics for professional accountants, including the International Independence Standards,  issued by the International Ethics Standards Board for Accountants (IESBA), and, where applicable, the rules and standards issued by other regulatory authorities, such as the US Securities and Exchange Commission, the PCAOB, and the European Commission.

These requirements are designed to help PwC comply with relevant professional and regulatory standards of independence that apply to the provision of assurance services. Where other local standards go beyond the international requirements, compliance with those standards is also required by the relevant member firm and other PwC firms as applicable.

Each member firm has a designated partner with appropriate seniority and standing, typically supported by other specialists, who is responsible for managing the independence processes and providing support to the business. Compliance processes rely on, among other things, a combination of business activities and monitoring systems.

Article image

PwC maintains a system identifying entities which are subject to independence requirements for member firms and their partners and practice staff. This drives many of PwC’s controls and processes and assists in determining the independence status of entities before a member firm enters into a new audit or non-audit engagement or business relationship.

As part of the PwC network’s investment in quality, in FY20, PwC updated its core compliance systems, including re-platforming on modern technology, to support our ongoing compliance with independence requirements.

Firm and personal relationships independence requirements apply to the interests and relationships of each member firm and to their partners, as well as to practice staff involved in providing services to an assurance client or its related entities. The PwC policy on independence sets out the key controls each member firm is required to implement including:

  • Monitoring of investments acquired and held by each firm, and their partners and practice staff managers

  • Annual independence compliance confirmation – every partner and practice staff member is required to complete an annual confirmation of their compliance with relevant aspects of the independence policies, including personal independence

  • Personal independence compliance testing – all member firms conduct personal independence compliance testing on a random sample basis as a means of testing compliance with personal independence policies

  • Approval of joint business relationships – before a member firm enters into a new joint business relationship, it must evaluate it for compliance with the PwC independence policies. All member firms are required to periodically review such joint business or financial relationships to ensure their ongoing permissibility

  • A rotation tracking system that monitors compliance with requirements relating to the rotation of audit engagement leaders and other key audit partners

Controls over non-audit services

Before providing non-audit services to entities that are subject to independence restrictions, all member firms are required to obtain authorisation from the group audit engagement partner responsible for services to that entity (or a related entity). The new system launched in FY20 has increased the effectiveness and efficiency of the process. Further changes to independence processes are planned in FY21 as part of our continual improvement process. To assist this process and promote understanding of the independence requirements that apply, PwC has developed a comprehensive set of policy and supplementary guidance documents that address the provision of non-audit services to audit clients and their related entities. These documents are based on the International Independence Standards established by the International Ethics Standards Board for Accountants (IESBA), as well as the rules and standards issued by other regulatory authorities. Member firms supplement this for local standards.

Our member firms are required to only provide those non-audit services to our audit clients that are permissible under the applicable rules. In many instances, these non-audit services are required by law or regulations to be performed by the auditor. However, while ensuring we have the right controls in place regarding the provision of non-audit services to audit clients, we are also conscious of the threats to independence in appearance that can be created by the provision of non-audit services to our audit clients and we assess this threat as part of our acceptance processes.

In FY20 over 71% of revenues from our audit clients in major global indices were for audit services, and less than 29% for non-audit services. The level of provision of non-audit services to audit clients is also declining with the figures in FY19 for the same group of clients being 69% audit services and 31% non-audit services, and for FY18, for those clients it was 64% audit services and 36% non-audit services. 

 

Chart image

We are very conscious of the need to be independent and to be transparent about how we deal with independence. We also firmly believe that having an array of skills and competencies within our member firms is fundamental to delivering audit quality. In addition, the ability to attract and retain talent by offering diverse and challenging career opportunities will continue to be essential in delivering quality audits, particularly as the audit evolves into the future.

Consultation and training

Consultation by engagement teams on independence issues is embedded in the PwC culture. Teams are encouraged to consult with independence specialists when a matter is complex, or in the case of doubt.

PwC’s processes are supported by training of partners and staff. All member firms are required to develop and implement a training plan to provide partners and practice staff with annual or ongoing training relating to independence appropriate to their position and role.

Article image

Monitoring

Each member firm is responsible for monitoring the effectiveness of its quality management systems,and in particular whether the policies and procedures which constitute its system of quality management are designed appropriately and operating effectively to provide reasonable assurance that its work is performed in compliance with laws, regulations and professional standards. This enables each firm to sign a confirmation of compliance with PwC standards, and to prepare a remediation plan where deficiencies are identified.

This includes performing reviews of the PwC member firm’s systems and procedures, and sample reviews at the individual engagement level, including the approval and conduct of non-audit services.

These reviews include a focus on independence and application of required policies and processes.

PwC reviews each firm’s compliance with professional standards and policies, including those relating to independence, through inspection activities directed at a risk based sample of member firms. In FY20, five member firms were subject to this periodic review (FY19: 4 firms). The review programme is based on professional standards relating to quality control, including ISQC 1, PCAOB Quality Control Standards and other applicable professional standards.

Any departure from independence requirements in the PwC independence policies and/or external regulations is evaluated. Member firms follow the relevant procedural steps set out in the IESBA Code of Ethics and/or that are issued by other regulatory authorities, which involves discussion with those charged with governance of the client regarding the nature of the breach, the impact on objectivity, and whether steps can be taken to address any threats to independence.

Member firms also follow applicable local requirements relating to the reporting of independence matters. Disciplinary measures may follow.

Partner remuneration

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

Payments to partners comprise both an equity return for their investment as owners of the individual firms as well as reward for their performance as individuals and as members of teams. This reward is based on their performance and contribution to their respective firms and, where relevant, to the wider network.

Quality is one of the most important measures in assessing a partner’s performance with each member firm operating an accountability framework to both recognise positive quality behaviours as well as penalise noncompliance with our standards or expected behaviours.

Article image
Mike Davies

Mike Davies

Director, Global Corporate Affairs and Communications, PwC UK

Tel: +44 7803 974136

Email

Andrea Plasschaert

Andrea Plasschaert

Senior manager, Global Corporate Affairs and Communications, PwC Switzerland

Tel: +41 58 79 29 123

Email

Contact us

Mike Davies

Director, Global Corporate Affairs and Communications, PwC United Kingdom

Tel: +44 7803 974136

Follow us