Delivering high-quality work is at the heart of everything we do at PwC - and is something that all our stakeholders rightly expect of us. But what do we mean by quality? Historically, it meant compliance and meeting the standards set before us. However, that's a given. In fact, quality for us is about much more than just complying with standards, policies and regulations: it's also about protecting our reputation and being recognised by stakeholders for delivering quality outcomes and keeping our commitments. Achieving that requires the right culture, tone at the top, systems of quality management and technology. All of these have been areas of focus during the last year, and are areas of further investment in the future.
In an environment where society's expectations are increasing almost by the day, and challenges are continuing to emerge unlike any we’ve encountered before, it’s more vital than ever that we maintain an unwavering commitment to quality. That’s why we are constantly looking for ways both to enhance the quality of our work and also to meet and exceed the expectations of our stakeholders. We don’t always meet those expectations nor the high standards we set for ourselves. But when our work is not at its best, we strive to learn the lessons and improve in the future.
The New Equation, our landmark global strategy launched this year, builds on our ongoing commitment to quality and our determination to always improve what we do. This is why it includes the targeting of investments to further enhance quality across our businesses. Across a global network of 295,000 people, we are building a culture that emphasises that quality is the responsibility of everyone at PwC. Such a culture begins with setting the tone at the top and creating an environment of quality and high performance. Over the past year, we have focused on fostering the right tone at the top at all our member firms around the world, striving to drive a quality mindset that extends beyond compliance.
The foundation of the strategy is our multidisciplinary model. This allows us to help clients build trust with their stakeholders and deliver sustained outcomes, by bringing together deep expertise and the right technologies across a broad range of much-needed capabilities.
PwC’s approach to building trust is designed to meet rising expectations of transparency, accountability and stakeholder engagement. It combines expertise in audit, tax and compliance activities with a drive to expand specialist capabilities in areas such as cyber security, data privacy, ESG and AI. It also recognises the importance of quality - and that reporting and compliance represent just one link in a chain that includes organisational culture, executive mindset, aligned standards, certified professionals, stringent controls, tailored technologies and appropriate governance.
Similar to building trust, delivering sustained outcomes requires us to work in an integrated way. Instead of taking a traditional technology-driven approach to transformation, PwC focuses on the outcomes that our efforts are seeking to achieve. To deliver the agreed outcomes, we then mobilise our expertise in areas including – among many others – strategy, digital and cloud services, value creation, people and organisation, tax, sustainability reporting, deals, business recovery services, legal and compliance.
To support the delivery of our strategy, each member firm is required to have in place a Quality Management System (QMS), to complete an annual assessment of the performance of its QMS, and to communicate the results of this assessment to the network leadership. These results are then discussed in detail with the leadership of each PwC member firm. If they are not at the level expected, a remediation plan is agreed, with local leadership taking personal responsibility for its successful execution.
During FY21, the Network Leadership Team continued to make driving quality improvement a key priority, with specific actions being agreed and implemented such as making more consistent use of certain metrics in our Strategy Council member firms.
As such initiatives underline, the quality of our work across the full range of our services has remained a core focus for us – both in terms of how best to test, measure and enhance quality, and also around prioritising the levels of investment we need to make to achieve and maintain the expected levels of quality. Each member firm is expected to address key reputational risks fully through its QMS and Acceptance & Continuance systems and procedures.
There is also an expectation that a focus on quality - including both systems and procedures - is given specific endorsement by local leadership, including through setting the tone from the top, and is properly communicated and understood by our people.
At PwC, our Tax & Legal Services are underpinned by our PwC purpose and values and our application of the principles of our PwC Global Tax Code of Conduct, with adherence to these principles supported by our Tax Policy Panels. Under our Code of Conduct:
Tax advice must be supported by a credible basis in tax law.
No tax advice relies for its effectiveness on any tax authority having less than the relevant facts.
Tax advice is given in the context of the specific facts and circumstances.
Tax advice involves discussion of the wider considerations involved, as appropriate in the circumstances, including economic, commercial and reputational risks and consequences arising from the way stakeholders might view a particular course of action.
PwC firms advise clients of appropriate options available to them under the law, having regard to all of the principles contained in the Code.
As of 30 June 2021, Tax Policy Panels had been established in 34 territories (FY20: 32), including in all of our 21 Strategy Council member firms. A Tax Policy Panel is composed of senior partners and subject matter experts who determine whether a potential tax project or advice position fits with our brand values and our commitments in the Global Tax Code of Conduct. During FY21 over 560 matters were considered and discussed by our Tax Policy Panels (FY20: over 340).
Our Advisory practice continues to enhance its performance to meet evolving client and market expectations on value and quality. Across the professional services landscape, we know that clients want more value, higher quality and a more technology-enabled experience, all at a more competitive cost. In that context, our Connected Execution way of working has served us productively and allowed us to meet the demands of the market as the pandemic rapidly shifted our clients’ priorities during the past year.
From a quality perspective, Advisory takes a multifaceted approach. We address clients’ evolving expectations by focusing on quality through four lenses: quality of earnings, quality of delivery, quality of client experience and quality of people. Advisory’s Connected Execution approach - which includes a common operating model and shared set of priorities - and our implementation of and enhancements to the Advisory Quality Management Systems and Risk Processes contribute to driving quality in these four areas. We regularly perform ‘in flight’ reviews of the most significant projects at our Strategy Council member firms so that we can make any necessary changes to ensure the quality of delivery and of the client experience.
Delivering quality audits is core to our purpose, and all of our member firms across the world are committed to providing high quality in all our audit work. Our new strategy’s focus on building trust continues to position audit where it belongs - at the heart of what we do - supported by a deep commitment to quality. When our work falls below the standards that we expect and that are set by the regulators, we should rightly be criticised. We take any instance of a sub-standard audit very seriously and we work hard to analyse the root cause of the issue, learn the lessons and take the opportunity to enhance the quality of future audits. Our member firms also reflect the importance of quality in the evaluation, recognition and accountability of the relevant assurance partners and leadership teams.
We welcome the increased public focus on audit quality, and the dialogue about how auditors, preparers and investors can work collaboratively to increase the level of confidence in financial reporting. We have actively contributed to this debate with audit committees, boards and regulators worldwide, both directly as PwC, and also collaboratively as a profession through organisations like the Center for Audit Quality in the United States. And we continue to publish our overall network internal inspection results for audit engagements. We are eager to keep engaging with others to share, listen and learn – while continuing to invest in enhancing the quality of every audit we undertake.
To help our member firms deliver consistently high-quality audits, PwC has established a quality management framework based on clear objectives around audit quality and provides support to help meet these objectives. Our member firms can only deliver quality audit services if they have access to the necessary capabilities both in terms of people and technology. That’s why our quality objectives focus on having the right capabilities – both at a member firm level and across our network – and on using these capabilities to meet our own standards and applicable professional requirements. These capabilities can only be developed and utilised within a quality culture, in which leadership sets the right tone and acts as role models for our values and behaviours, with the result that positive quality outcomes are demonstrated across the practice.
We also continue to provide guidance to support our engagement teams in addressing new and emerging risks with our clients and as part of our audits. Examples might include evaluating the impact of climate-related risks, and assessing whether these might give rise to a risk of material misstatement of the financial statements due to fraud or error.
As it continues to evolve, the COVID-19 pandemic has had an unprecedented impact on our clients and our people, as well as on global and local economies and wider society. The pervasive nature of this impact requires us to conduct an ongoing assessment of how we respond to the changing risks the pandemic presents.
At PwC, in addition to continuing to safeguard the health, safety and wellbeing of our people, we have remained focused on working together as a network, with our clients and with other stakeholders to continue to deliver audit quality.
From the early stages of the pandemic, we put a team in place to monitor COVID-19 developments globally and to highlight areas of critical importance to support our execution of quality audits – including looking at how we can best equip PwC firms and engagement teams to identify emerging or changing risks and respond appropriately. We developed specific guidance on the impact of COVID-19 for our engagement teams around the world covering critical aspects of audit quality, including regulatory and standard-setting updates, audit reporting, methodology, accounting, and learning and education. This gave our teams the critical means to assess the unique circumstances at play and respond accordingly.
As a result of the pandemic we faced a number of new challenges in our audits, not least because this past year has seen most of our clients and engagement teams complete a full audit cycle on an almost entirely remote basis.
To support our audit teams in dealing with these challenges, we’ve issued guidance, for example with respect to performing inventory counts in a COVID-19 environment. We’ve also encouraged the use – where necessary – of specialists to support audit teams on specific areas such as impairment and going concern analysis.
A member firm’s system of quality management provides the framework to identify, assess and respond to the risks arising from the pandemic. And as the pandemic continues to progress, we share experiences and examples from across our network to provide continuous and real-time learning to our people and help them respond to evolving risks and challenges. Our quality framework is built on the solid foundations of our purpose, values and quality culture, and this bedrock has been more important than ever over the past year-and-a-half.
Our audit technology infrastructure and tools have been in place for a number of years, and enabled our people to continue to carry out their work despite the significant change in our physical working environment.
Today, the impact of COVID-19 continues to evolve. In response, we’re continuing to monitor and address its ongoing effects on our people and clients, including the implications of the changing or easing of restrictions.
Our audit quality objectives are founded on having the right people, supported by effective methodologies, processes, and technology, appropriately directed and supervised. These represent the capabilities that we believe are relevant to achieving and sustaining audit quality. To help our member firms apply these capabilities, we have a number of dedicated functions within the PwC network that develop practical tools, guidance and systems to support audit quality. We’ve integrated and aligned these elements to create a comprehensive and interconnected quality management framework, Quality Management for Service Excellence (QMSE), that each member firm implements and tailors to reflect its individual circumstances.
In December 2020, the International Auditing and Assurance Standards Board (IAASB) issued its new Quality Management Standards - International Standard on Quality Management (ISQM) 1, ISQM 2, and International Standard on Auditing 220 (Revised). ISQM 1, in applying a quality management approach, is a significant change from ISQC 1, the standard that it replaces. The QMSE framework that has been in place in PwC member firms since 1 July 2019 is consistent with the approach and principles underlying the new ISQM 1 model. Both ISQM 1 and QMSE implement a quality management approach at both a firm and engagement level that shifts the focus to a more proactive management of the quality of engagements, supported by ongoing, real-time monitoring and timely and effective remediation of any deficiencies that are identified.
Systems of quality management in compliance with ISQM 1 are required to be designed and implemented by 15 December 2022, and the evaluation of the system of quality management is required to be performed within one year after that date. In terms of the updates needed to the QMSE framework to comply with ISQM 1, we do not expect a significant additional burden on member firms, as any necessary updates relate to areas that they were already likely to be addressing. Rather, these changes will reflect explicit requirements in ISQM 1 being made similarly explicit in the QMSE framework.
Central to the QMSE framework is the recognition that quality management needs to be embedded in everything we do as individuals, teams, and firms. To support consistency and guide our member firms, the quality objectives are supported by designated activities that we believe are vital to achieving them, focused mainly on building a quality infrastructure and organisation. Each member firm supplements these key activities to respond to risks that it has identified as relevant for its own operating environment and client base.
Integral to a firm’s quality management process under the QMSE framework is the use of Assurance Quality Indicators (AQIs) to “aim to predict”, Root Cause Analysis to “learn”, Real-Time Assurance to “aim to prevent”, and the Recognition and Accountability Framework to “reinforce” our quality culture, behaviours and outcomes. The effective design and operation of this quality management process is key to making sustainable improvements to quality. QMSE also emphasises the need to think more broadly about quality and risks to quality beyond compliance and to take a more holistic approach to monitoring, moving towards a greater reliance on real-time and ongoing monitoring, which represents a significant change from past approaches to monitoring and inspection.
Performing high-quality audits requires more than just the right processes. The auditor’s role is to reach a professional judgement based on reasonable assurance as to whether the financial statements prepared by the entity’s management are free of material misstatements and present a fair picture of the entity’s financial performance and position. To carry out this assessment effectively, our auditors need to use all the capabilities that have been built up in line with our quality objectives. These include professional scepticism, objectivity, specialist skills and judgement – all supported by state-of-the-art technology. PwC’s values guide our auditors in making their assessments, in applying ethical behaviour and building a strong culture. This year some member firms have started – and other member firms have continued – programmes looking into how they can further enhance their quality culture. These initiatives consider what more we can do to foster the behaviours that underpin quality, and cover topics such as how auditors can challenge each other and clients more effectively, how to create an environment that enables that challenge, and how audit teams can use feedback to facilitate continuous learning.
To avoid the risk of independence issues, PwC firms apply global ethical and independence principles and guidelines that limit the non-assurance services they are able to provide to audit clients. These have the effect of prohibiting auditors from acting in a management capacity or as an advocate for an audit client, and from auditing the results of other services provided.
These guidelines are reinforced by regulatory restrictions on the services the firms can sell to audit clients. These restrictions vary by country – but may include a complete ban on selling some services, and caps on the revenue that can be generated from others as a proportion of audit fees. In addition to these restrictions, some member firms have further limited the services they provide to certain clients in response to local concerns.
People at the heart of what we do: We aim to recruit, train, develop and retain the best and the brightest people who share PwC’s strong sense of responsibility for delivering high-quality services. And to prepare staff and partners for the delivery of quality assurance services, we provide them with access to a comprehensive curriculum of formal learning and technical courses. During the past year, we have continued to focus on using this curriculum to give PwC’s audit practitioners the opportunity to sharpen their professional judgement, scepticism, and technical and professional skills. The audit curriculum is available to PwC member firms in a modular format, allowing them to choose when they will deliver different portions of the curriculum and augment it with locally-developed training based on local needs, as well as being able to be delivered in a remote format, given the ongoing impacts of the COVID-19 pandemic. The materials have a variety of designs and formats which all follow consistent principles:
Focus on practical application
Simulate on-the-job experiences
Make use of technology in the classroom/virtual classroom where appropriate.
Our audit engagements are staffed based on expertise, capabilities and years of experience. Engagement leaders determine the extent of direction, supervision and review of junior staff. In order to learn and further develop their skills, team members obtain feedback on their overall performance, including factors related to audit quality such as technical knowledge, auditing skills and professional scepticism. Audit quality is an important factor in performance evaluation and career progression decisions for both our partners and staff.
Where appropriate and necessary, our audit teams are able to draw on expertise from parts of the network outside the assurance practice. Audit – especially in today’s data-rich world – requires analysis and judgement on vast amounts of increasingly diverse information. This means that a deep understanding of technologies like data analytics, as well as capabilities around the valuation of physical assets and complex financial instruments, actuarial calculations, treasury operations, tax compliance, and many other areas, can all be vital. Being able to bring these skills to bear on audit work helps strengthen audit quality and the trustworthiness of information used by the consumers of financial statements.
Powered by technology: PwC’s new strategy – The New Equation – further enhances our commitment to quality and our use of technology to help deliver it. It includes US$1bn of new investment dedicated to the accelerated deployment of technology that further automates the implementation of quality frameworks in audit, as well as building the delivery model for the audits of the future – which are expected to require more types of data, evaluate a broader range of information when assessing risks and integrate non-financial information more fully. This additional technology investment builds on our ongoing focus on quality, supported by rigorous methodology and training across all lines of service.
In the future, we believe that a step-change in audit quality will be achieved through a partnership between people and technology. We continue to invest heavily in advanced digital skills and AI-powered tools that are transforming the way people and tech work together. AI and automation have the potential to enhance audit work with exceptional speed and accuracy, reducing human bias and error while augmenting human judgement. Our auditors will work with intelligent machines that will be able to spot patterns and trends in large data sets, and detect anomalies and exceptions for further testing.
We are building our Next Generation Audit (NGA) by focusing holistically on the technology, people and business model it will involve. The NGA programme will radically transform the way we work across our global network by creating a simplified and intuitive approach that harnesses the power of data, intelligent automation and the expertise of our teams. It will deliver quality improvements as well as significantly enhancing our people’s experience of auditing both financial and non-financial data, and the value we deliver to our clients.
We will continue to invest in these tools and in developing the skills of our people to maximise and accelerate the benefits across the entire audit. And we are continuing to develop, implement and use new technologies to improve audit quality and provide better insights and user experiences. Examples include:
Aura Platinum – our cloud-based enterprise resource planning system for the audit – is at the heart of how we build and execute the audit plan, driving quality and consistency. It lays the foundation for future digitisation and automation and now has 146,000 users across the PwC network.
Connect Suite – our suite of collaboration tools with over 700,000 users – helps us to collaborate and exchange information efficiently with our clients and group audit teams across the network.
PwC Extract – our data extraction tool – enables teams to gather and manage client data. It allows teams to connect to client systems, acquire data in a secure way and store data safely.
Halo for Journals – our data analytics tool – provides deeper insights to clients through built-in visualisations, and allows engagement teams to spend less time performing manual processes and more time understanding transactions. It enhances quality by helping to identify unusual items and potential risks. Halo is currently being used with 14,726 audit clients (FY20: 13,000).
The monitoring carried out by each member firm includes reviews of completed engagements. Called Engagement Compliance Reviews (ECRs), these are risk-focused monitoring procedures covering, on a periodic basis, individuals in each firm who are authorised to sign audit or non-audit assurance reports. Each review assesses whether an engagement was performed in compliance with PwC Audit guidance, applicable professional standards and other applicable engagement-related policies and procedures. In addition, the PwC network undertakes periodic reviews of member firms’ systems of quality management to assess whether the overall quality objective and underlying quality management objectives have been achieved.
|Total audit engagement reviews||1,618||1,661||1,768||1,890||1,870|
|Compliant with Improvement Required (%)||13.2%||14.0%||18.4%||16.2%||18.4%|
|Total Compliant (%)||96.5%||96.2%||94.9%||92.2%||91.2%|
These reviews are led by experienced independent assurance partners, supported by independent teams of directors, senior managers and other specialists. Review teams receive training to support them in fulfilling their responsibilities, and use a range of checklists and tools developed at the network level when conducting their review procedures.
Between 2017 and 2021, we reviewed a total of 8,807 audits by member firms worldwide. The results are set out in the table above. Forty-six per cent of those audits were of ‘public interest entities’ (PIEs) (essentially listed and other significant companies) – and of these PIE audits, 197 were classified as non-compliant over the five years.
In cases where an audit is deemed to be non-compliant, we consider what, if any, impact this may have on the financial statements of the entity. For the 2021 inspection cycle, of the 1,618 audits that we reviewed through our internal inspection process, 56 (3.5%) were rated as non-compliant, and, of those, five (2020: four) have been assessed as requiring a restatement of the audited organisation’s financial statements and/or for the auditor's report to be withdrawn or reissued.
We know we can do better and that we need to reduce the level of non-compliant audits further. We are investing heavily in enhancing audit quality as described above – and we remain fully committed to a culture of continuous improvement.
In addition to our internal review programme, our member firms are subject to monitoring and inspection by external regulators. Some 58 of these regulators are members of the International Forum of Independent Audit Regulators (IFIAR). In 2015, in an initiative aimed at improving audit quality, nine leading audit regulators represented on IFIAR’s Global Audit Quality Working Group, and the six biggest global audit networks, agreed on a target to decrease the proportion of audits of listed public interest entities identified with findings from regulator inspections on an aggregate basis over a four-year period up to 2019.
A new 25% reduction target was subsequently established with the Global Audit Quality Working Group for the period from 2019 to 2023 with an expanded group of 25 audit regulators. We continue to monitor our progress against this target for regulatory inspection results.
Director, Global Corporate Affairs and Communications, PwC United Kingdom
Tel: +44 7803 974136