Written evidence submitted by PricewaterhouseCoopers (PwC) (DAR0019)


Thank you for the opportunity to contribute to the Delivering Audit Reform follow-up inquiry. We recognise that change is needed, and we are committed to improving audit quality.


Auditing has made a significant contribution to the UK’s economic health over many decades as part of a governance environment that is internationally recognised and has been one of the significant factors for attracting high levels of domestic and foreign investment into the UK. Greg Clark MP, who commissioned the three reviews of audit when serving as the Secretary of State for Business, Energy and Industrial Strategy, gave evidence to the Committee that he considered the audit profession in the UK to be world leading, and recognised both its contribution to the UK economy and the training and opportunities it has provided to many people, both in the profession and the wider workforce.


PwC are committed to supporting the long term success of the auditing profession. We believe that the audit will continue to play an important role within the UK’s governance structure, ensuring confidence in a post-pandemic, post-Brexit world. As set out in our response to Question 3, we are continuing to invest in enhancing our audit quality and growing our audit practice across the UK, providing training and opportunities through our graduate and apprenticeship schemes and continued professional development.


We acknowledge that there is a need for reform, but we are concerned that an emphasis on audit reform alone will not deliver the meaningful changes that are needed. We will continue to play our part in helping to develop the solutions needed to deliver a coherent set of reforms which address the whole corporate governance system (which in our view encompasses reporting, audit and accountability), not just audit. We expand on this in more detail in our response to Question 6.


We have sought to answer the questions set out in the Terms of Reference that are most relevant for us to comment on. This letter builds on our responses to the three regulatory reviews, and our written and oral evidence to the Committee’s previous Future of Audit inquiry.

Q.1 Do the proposals from the three reviews of audit fit together as a coherent package that can deliver meaningful reform?

In our view, the three regulatory reviews (by Sir John Kingman, the CMA and Sir Donald Brydon) each set out to answer different but important questions. Between them they produced recommendations that aim to: increase competition, choice and resilience within the audit market; enhance audit quality; make audit fit for the future; and restore trust across the corporate reporting ecosystem. Because of their differing objectives, the three reviews were not designed to deliver a coherent package of reforms and the implementation of recommendations from one review is likely to have implications for the implementation of recommendations from the other reviews.


To give an example, Sir Donald Brydon’s recommendation to establish a new ‘corporate auditor’ profession, that would include specialist auditors (e.g. auditors of cyber security or environmental measures), would need to be combined with a broadening of the scope of audit to encompass such areas of specialism. This could be something that Audit Committees voluntarily choose to do as part of their own governance responsibilities, or be made mandatory through legislation or regulation; otherwise there may be no demand for these broader audit specialists. This would also have implications for reform of the regulator as it would need the power to set auditing or assurance standards for these new areas of the audit and to regulate the new specialist auditors, including addressing the question of auditor independence and how the Ethical Standard covers this expanded scope of work. Consideration would also need to be given as to whether there needs to be a change to the current auditor liability regime to cover assurance of information outside of the financial statements, and whether company directors should be more publicly accountable for the accuracy of this type of information.

We believe that work is needed to bring the recommendations the government decides to take forward together into a coherent package that explicitly includes all areas of the corporate governance system, not just the audit.

Q.3 Will the reforms proposed by the audit industry itself address the failings that were identified by the reviews and the BEIS Committee’s Future of Audit Report?

As we have highlighted in our response to Question 1, there is a need for change across the whole corporate governance system. Some of the changes needed to the system are beyond the scope of the audit profession alone to make, but one area in which audit firms are able to implement changes directly is to enhance audit quality. Working to deliver consistently high quality audits is a key focus for our audit practice and in June 2019 we announced a substantial, ongoing change programme. We can only comment on reforms being undertaken by PwC; other firms will comment on their own change programmes.


Our Programme to Enhance Audit Quality was partly informed by discussions with our stakeholders that took place during our Future of Audit initiative, launched at the end of 2018. We brought together a mix of investors, audit committee chairs, finance directors and academics to hear their suggestions of what the audit could or should look like in the future, and to focus on what the profession could do in the absence of changing legislation or regulation. Our programme encompasses:


        implementing changes to our structure and governance by creating a distinct audit practice within PwC, which means we are already aligned with a number of the principles for operational separation laid out by the Financial Reporting Council (FRC), while maintaining both our ability to make continued investments to enhance audit quality, and our access to specialists;

        reinforcing a culture of challenge, which has been partly informed by the recommendations of an independent paper commissioned by PwC into the culture of challenge in audit firms, by Professor Karthik Ramanna[1];

        increasing the face-to-face training our audit teams undergo (this has continued virtually during the pandemic);

        investing in technology, recognising the increasingly important role that digital technologies play in enhancing the robustness of the audit process; and

        ensuring we have the right resources (including recruiting 500 additional experienced auditors) in place to deliver consistently high quality audits.


Enhancing audit quality effectively and sustainably will take time, in part because the changes required will take time to fully embed. This is why we have committed to a three-year programme that we will continue to build on in the years ahead. We also believe that it is critical that the audit profession and the regulator work collaboratively to develop a holistic and forward-looking approach to measuring and assessing audit quality. This is something that was not explicitly addressed within the three regulatory reviews.


Q.5 Will audit reform help track progress made by companies in meeting the UK’s Sustainable Development Goal commitments and in particular Net Zero?


The current proposed reforms do not specifically address the Sustainable Development Goals (SDGs) and Net Zero. However, our view is that an appropriate reporting framework, with associated assurance requirements, could help accelerate reallocation of capital to businesses embracing a Net Zero target. Firstly, there is an urgent need to establish a consistent, mandatory reporting framework for company directors to follow as they report their progress towards a Net Zero target. Secondly, the audit profession will need to work together with other stakeholders, including regulators, to determine how such reporting could be assured. Requiring independent assurance on this information would be valuable to stakeholders because it would give them confidence in the accuracy of the information they use to assess a company’s progress towards Net Zero, and would help them in holding directors to account on that progress.


In addition, auditors that provide such assurance would need to have a wider skill set than today’s financial statement auditors. For example, auditors would need to take into account the complex nature of companies’ supply chains and the current lack of consistency on Net Zero targets around the world. They would also need ready access to experts that are independent and that comply with the Ethical Standard requirements.


Q.6 How will audit reform fit with wider corporate governance reform?


The recommendations in the three reviews have varying degrees of implementation complexity, and multiple parties across the corporate governance system have a role to play in implementing them. A high functioning corporate governance system relies on each party within the system operating effectively and being held to account throughout the reporting process: (1) company directors are responsible for preparing the accounts according to an accounting framework and ensuring that robust internal controls and processes are in place to do so; (2) the audit committee is responsible for ensuring there is appropriate governance in place and that the interests of shareholders are properly protected in relation to financial reporting and internal control; (3) the auditor is responsible for auditing those accounts and, in doing so, challenges the company on its assumptions, estimates and judgments; (4) shareholders are responsible for reading the accounts and engaging with directors and companies on the issues that matter most for their investments; and (5) the FRC is responsible for regulating the accountants and auditors and for policing the UK’s corporate governance system to make sure the system works as intended for shareholders and other stakeholders.


Focusing on the auditor’s role, which is only one part of the corporate governance system, without addressing what comes before and after that part of the process will not bring meaningful change to the system. For example, the regime to hold company directors to account for failures in systems, controls and financial reporting is one area in which a core change needs to be made, and audit reform on its own will not resolve this. A holistic approach to reform across the wider corporate governance system is required to ensure that stakeholders can have confidence in the information they use for decision making. It is also important to recognise that any changes made will need to work in both the UK and internationally.




Audit plays an important role in society. By providing confidence to shareholders in the reported financial position and performance of a company, audit has a crucial role in building trust in businesses and the capital markets. We’ve also seen how the Covid-19 pandemic has re-emphasised the importance of reliable corporate reporting, supported by robust audits, to inform financial stakeholders as they take investment decisions in a time of severe uncertainty. It is therefore vital to restore trust in the audit and in the audit profession more broadly.


We look forward to our ongoing and constructive engagement with the government, the FRC, the Committee and other stakeholders to deliver reform that ensures that the whole corporate governance system operates most effectively. We are committed to continuing to implement the actions that we can take ourselves, including investing in improving the quality of our audits.


Yours sincerely,


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Kevin Ellis

Chairman & Senior Partner

Hemione Hudson

Head of Audit








August 2020


[1] https://www.pwc.co.uk/who-we-are/future-of-audit/building-a-culture-of-challenge-in-audit-firms.pdf