Ex-PwC top lawyer proposes big 4 watchdog, defends partnership model
Large accounting firms’ efforts to self-regulate are insufficient, Meredith Beattie says.
PwC’s former top lawyer has called for a big four watchdog to prevent the “cultural and behavioural problems” that enabled the tax leaks scandal.
In a recent submission to the consulting inquiry, Beattie, who served as PwC’s general counsel for almost 20 years, said the self-regulation of the big four was inadequate and stronger oversight was needed.
But she stopped short of calling for partnership limits, a proposal currently under consideration by Treasury and supported by industry bodies.
“The issues in relation to the recent Tax Practitioners Board investigation into the activities of Mr Collins and PwC Australia support the need for something more than self-regulation,” her submission said.
“What is needed is the imposition by government of regulatory disciplines upon firms and corporations to ensure the profit motive does not override adherence to government policy and community expectations.”
Her comments come after she appeared before the joint committee earlier this month for the first time since the scandal broke.
At the committee hearing, she recounted how PwC had abused LPP to prevent the ATO from accessing key documents as part of its investigations but insisted she was the one “rattling the can” and alerting the executive board.
“Certain parts of the tax group had not been following the protocols, they had not been following the legal engagement letters, and the effect of that meant that the privilege claims that had been made ... were not valid,” she said.
In her submission to Parliament last week, Beattie detailed several “cultural and behavioural problems which existed within sections of the firm's international tax practice” including the abuse of legal privilege, as well as the use of illegal tax structures and confidentiality breaches.
She suggested they could be addressed through a central oversight body to coordinate investigations and handle complaints, as well as annual reviews of firms’ conflicts of interest protocols and adherence with “a set of standards referrable to government and/or community expectations”.
But she defended the current partnership model, arguing it did not need to be “deconstructed in favour of a corporate vehicle”.
“I do not think the partnership model needs to be deconstructed in favour of a corporate vehicle,” she said.
“I believe the committee may wish to consider recommending that governance bodies of large accounting firms comprise at least 50 per cent external membership.”
Partnership caps were floated by a Treasury consultation paper in May, noting the current limit of 1,000 “may be too high in the absence of mandated governance requirements or transparency requirements”.
The current limit before firms must incorporate and fall under the Corporations Act was also well above other exceptions for lawyers (400 maximum) and architects (100 maximum).
PwC has around 650 partners, while EY and KPMG have around 700. Deloitte has over 1,000 partners, with half holding equity.