No Match Found
This Transparency Report is published in accordance with the requirements for third country auditors in Article 45 (5)(e) of the European Communities (Statutory Audits) (Directive 2006/43/EC) for our financial year ended 30 June 2022.
Nick Vermeulen, Territory Senior Partner, PwC Channel Islands
I’m delighted to introduce our 2022 Transparency Report. The annual publication is designed to help our key stakeholders and wider society within the Channel Islands understand our objectives, what we expect from our people and how we’re governed. While PwC is a multidisciplinary firm, this report is primarily focused on our audit practice and related services.
It's a special honour to be introducing this report, as this is my first since becoming Territory Senior Partner in January 2022. I would like to pay tribute to my friend and predecessor Simon Perry for laying so many of the foundations for our success as a business and for contributing so much to the communities, businesses and the economies of our islands.
At PwC, our purpose is to build trust in society and solve important problems. We’re a network of firms in 152* countries with more than 327,000* people who are committed to delivering quality in assurance, advisory and tax services. We’re committed to driving a strong culture of quality and excellence that is core to our purpose.
In June 2021, we unveiled The New Equation, PwC’s landmark global strategy which responds to fundamental changes in the world, including technological disruption, climate change, fractured geopolitics, and the effects of the COVID-19 pandemic. The New Equation is based on analysis of global trends and thousands of conversations with clients and stakeholders. It builds on more than a decade of sustained revenue growth and continued investment. The New Equation focuses on two interconnected needs that clients face in the coming years. The first is to build trust, which has never been more important, nor more difficult. The second is to deliver sustained outcomes in an environment where competition and the risk of disruption are more intense than ever and societal expectations have never been greater. More information on The New Equation.
In this introduction, I’ll be focusing on what drives our audit team, the thinking behind this and how we’re delivering in practice. If the uncertainty of the past year has taught us anything from an audit perspective, it’s that audit matters. To deliver for the clients and communities we serve, we need to keep listening, evolving and challenging ourselves to do better.
Just as the world had begun to edge its way out of the COVID-19 pandemic, 2021-22 saw a renewed disruption. The continuing upheaval stretches from the impacts of geopolitical instability and climate change to the surge in fossil fuel prices and resulting spikes in inflation and living costs.
While the Channel Islands have clearly been affected by these challenges, we can benefit from some important advantages as we look to put our economies on a stable and sustainable footing. In particular, our islands have many investment management clients who have been early pioneers in the financing and development of wind, solar and other forms of renewable energy. These include some of the foremost companies listed on the London Stock Exchange.
While peers in other parts of the world may still be figuring out how to move forward on sustainable finance, emissions measurement and other environmental, social and governance (ESG) priorities, our private markets’ managers have the track record to attract capital and drive job creation and further growth in sustainable finance within our economy.
Here at PwC, we recognise our role in helping our islands and the wider world to steer through uncertainty and change. When we describe our purpose as building trust in society and solving important problems, our work with renewable energy suppliers and private markets’ businesses exemplifies this. Clear and accurate, evidence-based audit is critical in building investor trust and sustaining the resulting flows of capital needed to finance green innovation and growth.
Working alongside our financial auditors, our dedicated Net Zero and ESG team is helping governments and businesses across the Channel Islands to develop their sustainability strategies, address net zero audit risks and gain assurance over metrics and reporting.
But at a time when complexity is increasing, societal expectations are rising and trust is more fragile and difficult to earn than ever, we know that we need to keep improving the quality and credibility of our audit capabilities and output.
So what are we doing to strengthen audit quality and credibility in practice?
If we begin with direction, oversight and challenge, we’ve made a number of important changes in recent years. This includes splitting the role of External Audit Leader and Territory Senior Partner. This separation enables our audit lead, Karl Hairon, to dedicate all of his time and expertise to developing our audit service line and driving audit quality.
We also have split roles between Quality Leader and that of the Risk Management Partner, with the more targeted focus of each role, designed to improve the quality of our audit work. Under the direction of Evelyn Brady, risk focuses on setting the right approach and ensuring the appropriate people are assigned to particular roles and engagements. Under the direction of John Luff, quality focuses on day-to-day management and compliance with regulations and internal procedures.
Hani Salem, a Director responsible for audit methodology, leads the recently established Channel Islands Chief Auditor Network across each key industry, advising on the most complex and judgemental aspects of audit methodology.
These developments have helped us maintain an enviable record in recent years on the annual audit file reviews performed by experienced Partners, Directors and Managers from other member firms within the PwC Network.
But this does not mean that we can be complacent. We can’t let up in our focus on quality and innovation. This year, the PwC network has announced a $1 billion global investment to design and implement PwC’s Next Generation Audit, an ambitious refresh of the tools and approaches that we use to deliver high quality audits.
Clear lines between the auditor and the business being audited are equally critical in sustaining credible and effective audit. Steps to sustain personal independence include rigorous testing and record-keeping of the investments and other financial interests of Partners, Directors and their families and close associates. This is built into our Responsibility and Accountability Framework. In keeping with changes in how people live, work and engage, the scope of who is covered has been widened to incorporate a broader range of relationships.
To support these vital safeguards, we’re making available a new personal independence tool to assist Partners and employees in ensuring personal investment portfolios reconcile to the records lodged on PwC’s independence systems. During 2021-2022, where personal independence exceptions have arisen, the financial sanctions detailed in our Responsibility and Accountability Framework have been invoked.
The other key foundation for quality and credibility is people. The audit and support teams in our offices in Alderney, Guernsey and Jersey bring together a rich array of experience, expertise and life journeys. Some like me have been born and bred on the islands, then worked abroad, before returning to continue their careers here. Others have made their homes and careers here. In all, our workforce brings together people from 37 nationalities. I believe that this diversity gives us fresh perspectives and helps foster innovative ideas, while guarding against the dangers of groupthink.
Looking beyond the immediate audit team, our multidisciplinary model ensures that our audit teams are able to access independent experts and specialists from across the Channel Islands firm and wider PwC network, enhancing audit quality and bringing insight to the organisations we audit. Like me, many auditors switch to advisory roles during their careers, with their advisory work benefitting from the industry experience they gained as auditors. Our support for the development of a market structure for the electricity market that will assist Guernsey to meet its Net Zero commitment attests to the value of knowledge sharing and multi disciplinary firms. We fully support that in order to support auditor independence, there are restrictions on the kind of advisory work we can carry out for audit clients. We regularly review independence policies and perform stringent checks prior to the commencement of any non-audit services to ensure we maintain auditor independence.
Qualified auditors are in short supply worldwide, and especially here in the Channel Islands. That’s why we continue to expand our professional training programmes in all lines of service, both for graduates and school leavers. During the year ended 30 June 2022, we recruited 22 school-leavers and graduates in Guernsey and 24 in Jersey, along with 93 permanent experienced hires, and 7 fixed-term contractors during this period across the Channel Islands.
This ability to attract so much local talent is great for us. In turn, we’re delighted to be able to offer young people coming out of education in Alderney, Guernsey and Jersey the chance to qualify as an accountant and open the way to a rewarding career, without having to leave the islands they love. Recruits coming straight from school have the further benefit of working towards a world-recognised qualification without being burdened with student debt.
Once qualified, some of our people will of course seek out opportunities in the UK and abroad. Others may want to move on to other businesses on the islands once they’ve gained experience with us. The loss of people once they qualify is one of the reasons why we’ve a relatively high turnover of staff. But we believe this is part and parcel of being a training ground for people across our islands. We’re sorry to see them go, but we know we’ll see them again. Many come back to us after enriching their skills and experience in other parts of the world. Others form part of our alumni network, work with us as clients and help strengthen the capabilities and talent pool for our business community.
With audit staff in short supply, we also recognise the need to augment the resources available to us as far as possible. A key part of this is an arrangement we’ve established in South Africa in partnership with the local PwC firm, providing us with access to skilled members of their Audit practice which increases our capacity to serve our local clients. Overall, over a quarter of our total audit hours are now delivered through a combination of remote secondees, delivery centres and the arrangement described above with PwC South Africa, compared to 16.1% in 2020-2021.
Just as important is how we support and deploy people within our teams internally – what we call ‘smart working’. Key developments include running a pilot for a flexible four-day week during the summer. Drawing on tech support and improved use of time, the pilot offers 100% pay, for 80% of the hours, but with the aim of increasing daily productivity. Through such initiatives, we want to create a team of people who are healthier both mentally and physically, who are focused, engaged and determined to get the job done in a way that suits their diverse needs. We chose the summer for the trial as this is outside our busiest audit ‘season’.
Alongside developments such as sabbaticals, time-off for travel and the flexibility to work from home as and when people want, exploring options such as a four-day week for part of the year can help to strengthen welfare, ease stress and guard against anxiety and burn-out. On top of being the right thing to do, we benefit from a more motivated team and the ability to attract and retain a broader mix of talent.
Flexibility only works when there is full buy-in and participation from the leadership. If people don’t see senior teams working flexibly or believe it could undermine their chances of promotion if they do, they won’t take up the option. I took part in the four-day trial and I regularly work from home. On Tuesday and Thursday evenings I go sailing and can’t be reached. That’s my time and my colleagues respect that.
At the same time, we know that we still need to explore fresh options and hone our approaches as we seek to keep pace with the revolution in how people work and engage. As the ‘Great Resignation’ has highlighted, many professional people have also become disillusioned with their work and are rethinking the direction of their careers in the wake of COVID-19. While some attrition is inevitable in a business like ours, I’m conscious of the fall in retention rates among associates and senior associates and the need to identify and address the causes. Given our attrition rate overall, we’re in a permanent recruitment drive. Further areas in need of attention include international secondments. As I found in my career, these exchanges can play an important role in developing experience and sharing new ideas. But openings have declined and we will be looking at how to build them up again.
For people to work at their best, they need the right technology. We use technology throughout our audits, from risk assessment analytics in planning to the use of artificial intelligence, data auditing and visualisation techniques in our testing. Cutting edge innovations developed and trialled by PwC over the past year include an artificial intelligence prototype for the General Ledger, which can pick up behavioural characteristics of journals and apply these to existing data, thus exposing anomalies.
Technology helps us to connect and collaborate, work more efficiently and enhance quality for clients, while eliminating needless costs – more for less. In turn, it provides valuable insights to enhance decision making, while enabling our audit teams to focus more of their time on genuinely value-adding activities.
Here in the Channel Islands, the finite availability of talent and the need to make the most productive use of time has encouraged us to be tech pioneers. We also operate in one of the most regulated markets in the world as the islands seek to sustain their hard-won ‘whitelisting’ on tax, transparency and oversight. These twin drivers for innovation have come together in our development and adoption of a new anti-money laundering (AML)/Know Your Client (KYC) system. This is now being rolled out across the PwC network worldwide.
Making a success of such innovations requires extensive upskilling, not just in mastering the technicalities of the tools, but how to deploy them within the audit process in the most productive way. Success also requires a good deal of trial, error and pain. This is especially so for the systems we’ve helped develop here in the Channel Islands, as we act as the guinea pigs before they’re rolled out across the PwC Network. But it’s worth it. A clear case in point is the speed with which our new AML/KYC system is able to pick up potential sanctions risks, not just for the person being screened, but their multiple connections worldwide. Detection as thorough and quick as this has never been possible before.
So, if I opened my introduction by stressing both the importance of audit in an uncertain world and the need to evolve to keep pace, then I hope this report helps highlight how we’re seeking to live up to this commitment. But we know that we can never stand still, as professionals, as a business and as members of communities facing so much upheaval and change.
I hope you find this report useful. If there are any issues that you would like to discuss, please feel free to get in touch.