PwC is banking on a $12bn investment to become the ‘auditor of the future’ | Fin24

PwC plans to invest $12 billion in its global operations over the next five years. (iStock)

• PwC plans to invest $12 billion in its operations globally over the next five years.
• It wants to increase its staff headcount in SA by at least 50% and channel more money towards artificial intelligence and other technologies.
• The firm says its investment in new technologies will help it become the auditor of the future that can pick up the risk of fraud and material misstatements.

Auditing firm PwC says it will be investing $12 billion (around R165 billion) globally over the next five years and create over 100 000 jobs in the process to beef up its auditing capabilities and rebuild trust in the accounting profession.

The big four accounting firms – PwC, Deloitte, Ernst & Young and KPMG – have all been working harder to win back public trust in South Africa since state capture and other accounting irregularities in companies like Steinhoff and Tongaat Hulett.

But it’s not just in SA: The UK regulator, the Financial Reporting Council, wants the big four to break up their audit businesses from the rest of their other operations, and that voice is growing in other corners of the world too.

PwC Southern Africa CEO Dion Shango told the media that the firm has adopted a new strategy that will make it more technology-led and thus improve its audit outcomes. The $12 billion will help PwC increase its staff headcount from around 270 000 people today to over 350 000 in five years.

The investment in technology will deliver what PwC calls “the audit of the future” as it will be able to handle much larger volumes of data and to assess a much broader range of risks, and not just the financial metrics that auditing has traditionally focused on.

“As you can hear, this is quite a shift from the audits of today, which are much more narrowly focusing on the reporting on the financial metrics of organisations. So really an investment that will be much needed in order for us to deliver on this commitment of building trust and delivering sustained outcomes,” said Shango.

Big focus on African operations

While the firm is still working through the exact details of investing the $12 billion, Shango said in South Africa, PwC wants to increase its staff headcount of about 5 000 people by 50% as Africa is getting a big focus.

“My leadership team and I have actually set ourselves this ambition of trying to make PwC Africa $1 billion in the next five years, from the circa $600 million business cities today,” he said.

The staff headcount in SA comes when big auditing firms are forced to relinquish some of their clients to smaller competitors because of mandatory audit firm rotation regulations in the country. That regulation comes into effect in April 2023, but listed companies are already changing their external auditors.

Shango said the level at which companies are rotating auditors has never been greater, but PwC has maintained its market position as PwC in terms of market. But to keep that going, especially when competitors like KPMG are making bold moves of not offering consulting work to their audit clients, PwC too must have something that stands out, especially since it’s not following in KPMG’s footsteps.

So, the investment in technology is a big thing for PwC.

“We see technology as an opportunity to really amplify our ability to cover much larger data sets, and that so going evolve how we’ve been auditing for many decades,” he said.

Shango said the firm sees this investment as a lever to increase its ability to cover the risk of fraud and material misstatements in financial statements. So, the technology will be deployed to do the mundane work to allow humans room to focus on areas of significant judgment and estimation that auditors need to scrutinise.

Not separating audit from non-audit operations

On whether PwC has considered the possibility of not offering consulting services to its audit clients, Shango said the firm consulted its clients about this after KPMG’s announcement. But it had a “mixed bag” of responses. Some agreed with such a policy, but others felt that it should be up to their boards’ audit committees to decide whether they want someone else to do their non-audit work.

He said PwC was mindful of the perceived risk of independence when auditors perform too much non-audit work for clients. But that clients’ audit committees impose a cap of roughly 20% on how much the firm can earn from these services.

“We don’t get anywhere close to that cap at most of our clients. And so, the view we’ve taken is that yes, while the announcement by KPMG and the move to stop performing non-audit work at audit clients is very much a noble view and a step in the right direction, we will continue working with our clients,” said Shango.

He added that PwC’s analysis on the work that earned it a mention in the State Capture Commission showed that taking on non-audit work was not a significant contributor to the wrongdoing or state capture involvement that has tarnished the reputation of auditing in SA.