PricewaterhouseCoopers released its 2022 audit quality report Tuesday, pointing to progress in its audit practice on a number of fronts, including on inspections, training and diversity.
PwC reported that it had a 100% internal inspection compliance rate, with 99.3% of its reports on internal controls over financial reporting not reissued or withdrawn, and 99.7% of audited financial results not restated. A total of 180 audits were subject to internal inspection within the firm.
PwC also did well on outside inspections from the Public Company Accounting Oversight Board, with the most recent inspection report from 2020, issued at the end of last September, showing only one of the 52 audits reviewed in 2020 included in Part I.A due to the significance of the deficiencies, relating to PwC’s testing of controls over and substantive testing of revenue and related accounts and inventory at the client. That represented an improvement on the previous inspection report from 2019, when 18 of the 60 issuer audits were included in Part 1.A by the PCAOB, with the identified deficiencies mainly related to the firm’s testing of controls over and/ or substantive testing of revenue and related accounts, income taxes, the allowance for loan losses, investment securities and inventory.
PwC currently audits over 700 SEC registrants, representing over 11 trillion in market capitalization, according to its own report. The firm audits over 27% of the FTSE 500 and over three-quarters of exchange-traded funds based on assets under management.
The Big Four firms have come under fire for problems with audit quality after a series of accounting scandals in the U.S. and abroad, but efforts to diversify the audit market have not been successful by and large. Smaller firms have focused more on middle-market companies. One of the Big Four firms, Ernst & Young, is reportedly getting set to approve a plan this week to spin off its consulting practice as a separate firm after a vote by its partners and member firms around the world, according to The Wall Street Journal. However, PwC and the other two firms in the Big Four have indicated they plan to keep their audit and consulting practices together within the same firm.
PwC has been making efforts to improve audit quality, and 97% of its audit professionals reported receiving consistent messaging on the importance of audit quality, according to the report, while 96% of the survey respondents understand the firm’s audit objectives. PwC has also been making efforts to expand the diversity of the firm, with 48% of the employees being women and 39% being racially and ethnically diverse individuals. Among partners, 24% are women and 18% are racially and ethnically diverse.
Audit professionals still work plenty of hours, with partners and managing directors putting in an average of 349 annual hours in excess of 40 hours per week, directors and managers working an extra 295 average annual hours, senior associates working an extra 256 hours, and associates working another 220 hours on average throughout the year.
To reduce the number of hours and automate the process, PwC is investing $1 billion on the next generation of auditing over the next few years.
“It’s a multiyear investment that helps our people deliver assurance on things that matter,” Wes Bricker, vice chair and U.S. Trust Solutions co-leader at PwC, recently told Accounting Today. “Those things will be financial statements, greenhouse gas metrics, carbon and so forth. That billion dollars is going into our next-generation audit that creates a different experience for our people. As we look at the profession, the profession develops people as leaders. Those people, some of them stay at firms. Many of them go on to be government leaders and business leaders in the classroom and elsewhere. But the early experience within the profession that accountants get with firms of all sizes is critical. I know we will play our part with the tools and the technology that help our people focus on the things that matter. It might be data getting the right data from client systems where we’ve taken over 100 of our trust professionals and put them into a team of experts who start with guided processes for really delivering on a high-quality audit.”
During a time when firms are desperate to hold onto skilled employees, the average annual voluntary turnover rate at PwC was 26.4%, including 23.4% of managing directors, directors and managers, 34.8% of senior managers, and 22.9% of associates.