Whilst PwC is a multidisciplinary firm, this report is primarily focused on our Audit practice and related services. It will be of particular interest to the investor community and Audit Committee members and chairs.
Hear from our leaders
Hear from our Chairman and Senior Partner, our Head of Audit, and Chair of our Public Interest Body as they reflect on the last year and look ahead on our continuing journey to enhance audit quality.
Statement on the effectiveness of the firm’s internal quality control system
The quality control system for our Audit practice as explained within our Transparency Report, has been suitably designed and complied with. The quality control system provides us with reasonable assurance that we perform and report in line with applicable professional standards.
We have had an encouraging set of inspection results this year, and continue to invest in our Programme to Enhance Audit Quality (PEAQ). By evolving our system of quality control, we will ensure it remains fit for purpose in a changing environment.
Firmwide governance
The firm’s governance is guided by our purpose – to build trust in society and solve important problems. Our purpose is central to our decision making processes and our risk appetite. It also informs how we manage our business in the interests of our partners and stakeholders.
The key matters considered in the year by our governance bodies included strategy, culture, people, quality, performance, regulation and reputation. The governance of key risks facing the firm (including cyber, regulatory and litigation risks) were also considered by the firm’s governance bodies.
The key governance bodies of the firm are described below.
- Supervisory Board
- Public Interest Body
- Audit Oversight Body
- Management Board
Supervisory Board
The Supervisory Board (‘SB’) considers a wide range of issues such as risk, strategy, reputation, people matters including health and wellbeing, technology, return on investments, and culture. It has supported, given guidance to and challenged the Chairman and Senior Partner and the Management Board. The SB has particular insight on the views of partners and reflects these in conversations with management.
Public Interest Body
The purpose of the Public Interest Body (‘PIB’) is to enhance stakeholder confidence in the public interest aspects of the firm’s activities. It does this through the involvement of Independent Non-Executives (‘INEs'). The PIB considers a wide range of issues, as determined by the independent Chair, with a particular focus on matters of public interest.
The membership of the PIB includes a majority of INEs, as well as the Chairman and Senior Partner, the Head of Audit, the Chair of the SB and a further member of the SB.
Audit Oversight Body
The Audit Oversight Body ('AOB') was established in November 2020 to oversee governance of the firm’s Audit practice. It is chaired by Philip Rycoft, INE. The AOB plays an important role in ensuring we remain focused on delivering consistently high quality audits. The AOB provides oversight and challenge in areas such as Audit strategy and Audit partner remuneration.
Management Board
The Management Board ('MB') is responsible for the policies, strategy, direction and management of the firm. It also provides oversight of the long term strategy and certain partner matters under the Members’ Agreement.
The MB focuses on strategic matters, utilising the knowledge and experience of both Executive Board and Clients and Markets Executive members (see the “Committee structure” PDF below for further details of these governance bodies). The MB considers matters in line with its Terms of Reference, including updates in relation to the Audit practice.
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Philip Rycroft, Independent Non-Executive (INE)
"I am delighted to Chair the Audit Oversight Body at a time when audit quality, audit culture, and the audit profession as a whole remain under the spotlight."
View TranscriptDownloads
The following documents provide additional detail on the firm’s governance
Independence and ethics
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. We take ethical behaviour seriously. We embrace the spirit and not just the letter of the relevant ethical requirements.
5:00
Nicola Shield and Jon Walters
The firm’s Ethics partner is Nicola Shield, and the firm’s Partner Responsible for Independence is Jon Walters. Nicola and Jon are supported by a team of specialists who help ensure that policies and processes are comprehensively and consistently applied.
View TranscriptDownload
This document provides additional detail on the firm’s independence and ethics policies, procedures and tools
People
We aim to attract, develop, reward and retain top talent by creating a culture where the best people want to stay and build their careers.
We have a focused recruitment and onboarding strategy and have continued to recruit and onboard throughout the pandemic. Having the right people with the right skills is fundamental to audit quality.
Our main priority throughout the pandemic has been our people - and in particular, their wellbeing and job security. During the worry and uncertainty, we’ve sought to provide reassurance, care and clarity, and our consistently high engagement scores over the last year reflect this.
As well as protecting jobs, we’ve been able to make an unprecedented investment in our people, while planning for a post-pandemic world, continuing recruitment activity and investing in the workforce of the future.
Audit culture and behaviours
The ability to challenge and apply professional scepticism is key to delivering high quality audits. At the start of the PEAQ we commissioned an independent paper from Professor Karthik Ramanna on “Building a culture of challenge in audit firms”.
We used this independent perspective, along with PwC’s cultural experts in our People and Organisation team, to review our culture and develop our “critical few” Audit behaviours to drive high quality:
- Team first
- Challenge and be open to challenge
- Take pride
Team first
This behaviour means being inclusive and working together, encouraging a ‘problem shared’ ethos, investing in personal and professional development, coaching with purpose, openly communicating expectations and being present.
For example, team members investing in their own and others, coaching, being present in all interactions and supporting each other to ensure we drive quality for our ultimate clients, meaning shareholders and wider stakeholders.
Challenge and be open to challenge
Being comfortable to challenge the organisations we audit, our teams and ourselves isn’t always easy, but it is fundamental to audit quality.
It’s important that we all make a safe space for challenge, that we role model constructive challenge and empower challenge by providing each other with “air cover”. Being inquisitive and speaking up is the most important way to ensure audit quality.
For example, senior team members role modelling constructive challenge and visibly challenging management will empower junior team members to challenge themselves and management in pursuit of the highest quality.
Take pride
The Audit profession and our purpose as auditors is fundamental to capital markets and has a much wider value to society. Audit is a deep specialism and we acknowledge the importance of the work we do and take pride in our profession. Taking pride in our day to day work is critical to achieving audit quality.
For example, every time a team member finishes a piece of work, whether it’s a whole audit, a management letter, an audit committee report, or a single procedure, we ask them to ensure they are proud of the quality of the work.
Everyone within our Audit practice is expected to demonstrate the Audit behaviours. We’ve embedded them into everything we do, including in our training and how we evaluate performance. We undertake an annual Audit Culture and Behaviours survey to measure how our people are experiencing the behaviours and identifying any barriers to demonstrating them. By taking the pulse of the practice and tracking our progress in embedding the behaviours, we can further develop and tailor our cultural programme. Our 2021 survey showed:
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Our culture in the Audit line of service
We asked some of our Culture champions to share their perspectives on our critical few behaviours.
View TranscriptRecruitment
The firm aims to recruit, train, develop and retain the best and the brightest staff who share in our strong sense of responsibility for delivering high-quality services.
In FY21 across the firm we recruited
Training
Our PwC Professional career progression framework underpins a training curriculum that provides a wealth of opportunities for our people to develop. An individual’s development journey starts when they join the firm and continues throughout their career, tailored to their grade, role and experience.
Training our auditors through a combination of remote access training and classroom training (pre-COVID) remains a key part of our quality assurance activities.
This year, our External Auditor Training (EAT) programme was redesigned for virtual delivery. During 2020 close to 3,400 individuals completed the EAT programme, attending the summer and autumn events virtually.
The topics covered in 2020 included effective project management, common pitfalls in financial statements review, auditing the future and auditors’ reporting requirements. Subject matter experts shared lessons learnt from investigations, and there was a dedicated session on developing a “forensic mindset”. Teams also spent time together focused on coaching, supervision and review, especially in the context of a hybrid working environment.
Performance
Performance is defined for our people as “what you do (your contribution and the impact it has) and how you do it (the behaviours you demonstrate)”. Managing contribution, impact and behaviours is a year round activity. All of our people have regular meetings with their career coach to discuss their ongoing performance.
Auditors’ quality goals
Alongside the goals that all staff set for themselves each year, our auditors are also required to set a goal specifically relating to Audit Quality. These:
- reinforce the personal responsibility that all auditors have to deliver consistently high quality work, and to demonstrate the Audit behaviours;
- promote change on engagements in order to make it easier to deliver consistently high quality audits; and
- where relevant, are reflective of any adverse findings from either internal or external quality reviews from previous years.
At the end of each performance year our auditors are evaluated against their goals (including their audit quality goals), the PwC professional career progression framework, and the Audit behaviours.
Audit Partner Remuneration and Admissions Committee
The Audit Partner Remuneration and Admissions Committee (APRAC) is a committee of the Audit Oversight Body (AOB). The APRAC supports the AOB in the oversight of specific obligations relating to the FRC’s objectives, outcomes and principles for operational separation.
The APRAC is comprised of up to three Audit Non Executives (ANEs). The APRAC’s primary responsibilities are:
- to oversee the audit partner remuneration process to ensure individual audit partner remuneration is determined above all by contribution to audit quality; and
- to oversee the process by which candidates are selected for admission to the partnership to practise as audit partners.
Downloads
The following documents provide further detail on matters relating to the firm's people agenda
Audit quality
We continue to invest in our Programme to Enhance Audit Quality (PEAQ) and are committed to performing consistently high quality audits. PEAQ is made up of four workstreams: structure and governance; culture and recognition; quality control activities; and supply and demand. Taken together these workstreams ensure our commitment to audit quality is reflected in everything we do.
The quality of our audits
- Audit Quality Review (AQR)
- Quality Assurance Department (QAD)
- Engagement Compliance Review (ECR)
Audit Quality Review (AQR)
The FRC’s Audit Quality Review team (AQR) undertakes inspections of the quality of the firm’s work as statutory auditors of public interest entities and aspects of the firm’s policies and procedures supporting audit quality.
Quality Assurance Department (QAD)
Similar to the AQR, the ICAEW’s Quality Assurance Department also undertakes inspections of the quality of the firm's work. However, the QAD inspects audits of entities that do not fall within the AQR’s scope. The results of the inspections undertaken by the AQR and QAD are reported to the ICAEW’s Audit Registration Committee (ARC).
Engagement Compliance Review (ECR)
The Audit engagement compliance review (ECR) programme considers the full population of audits performed and is designed to cover both the firm’s Responsible Individuals (“RIs”) and specific categories of audit clients, such as Higher Profile Clients.
The identification of a finding from an audit inspection means that a certain element of the audit has not, in the opinion of the reviewer, met the requirements of the relevant auditing standard. This does not mean that the audit opinion was wrong or that the financial statements were materially misstated. Of the audits inspected, 99% did not require a restatement of the financial statements.
Throughout the year to 30 June 2021, we also monitored 18 Audit Quality Indicators (‘AQIs’) ranging from engagement management to people metrics, on a quarterly basis to identify trends in audit quality. Separately to this, the Policy and Reputation Group (PRG) previously identified three people-related areas which could contribute to audit quality, and are measured through staff feedback surveys.
High quality audits support high quality corporate reporting and underpin trust in capital markets and among wider stakeholders. On average we identify at least five adjustments to each set of group financial statements we audit, with at least one of those adjustments being material to the financial statements. We also report any control deficiencies identified through our audit work to those charged with governance. On average we identify at least five key control findings per group audit.
Downloads
The following documents provide additional background on the firm’s audit quality, and the system of quality management used to drive quality
Our Audit methodology
PwC Audit methodology is a single, global methodology used by all PwC member firms. Based on International Standards on Auditing (ISAs), and adapted for supplementary UK requirements, it enables our engagements to scale from smaller and medium sized businesses to global enterprises.
Our methodology provides a framework for our engagements, and is tailored to each specific entity’s industry, circumstances and characteristics.
Downloads
These downloads provide further detail on specific aspects of our methodology and audit approach
Finances
We established a separate Audit line of service on 1 July 2019. The Audit line of service’s revenues, split by public interest entity and non-public interest entity audits, is included in the financial information document that can be downloaded below. This document also includes the practice’s profitability as calculated by the Voluntary Code of Practice on Disclosure of Audit Profitability, issued by the Consultative Committee of Accountancy Bodies in March 2009.
£790m
Total revenues generated from Statutory audits and directly related services for all entities we audit
FY20: £754m
Audit revenues have increased this year, primarily resulting from scope changes arising from the continued impact that the COVID-19 pandemic is having on the organisations we audit. This increase in revenue allows us to deliver consistently high quality audits and meet the increasing societal and regulatory expectations of auditors.
Downloads
The following documents provide additional information on the audit practice’s financial performance, its registrations, and other required disclosures
Related content
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Global Chief Risk and Regulatory Officer, UK Chief Network Officer, EMEA Executive Chair, PwC United Kingdom
Partner, UK Head of Public Policy, PwC United Kingdom
Tel: +44 (0)7841 490928
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