PwC Australia releases its Transparency Report
(via https://www.pwc.com.au/media/2024.html)
PwC revenue slumps $820m after tax leaks scandal
Edmund
Tadros Professional services editor
Sep 24, 2024
Revenue at PwC Australia fell by more than a quarter, or $820 million, to
$2.35 billion in the year to June, marking its worst slump on record due to the
ongoing fallout of its tax leaks scandal and a subdued consulting market.
The firm, once the pre-eminent consulting outfit in the country, has now
fallen to third place by revenue behind
Deloitte Australia and EY Australia. It remains ahead of KPMG Australia.
PwC Australia chief executive Kevin Burrowes. Bethany Rae
PwC’s profit fell by 24 per cent in 2023-24, but average partner income only
declined by 13 per cent due to top-up payments made to help them with
unexpected tax liabilities. The firm also propped up its earnings through a
concerted cost-cutting program, which involved hundreds of staff redundancies and dozens of
partner cuts.
Average partner income at PwC is now about $765,000. This compares to
average partner income of $814,000 at EY, $650,000 at KPMG and $510,000 at
Deloitte.
The results show that chief executive Kevin Burrowes has done a remarkable
job of ensuring the business is still generating revenue despite the turmoil
that has engulfed it for almost two years. Mr Burrowes has made wide-scale
changes at the firm designed to improve governance and strengthen risk
controls.
“During a challenging year for the firm, we implemented ambitious and
meaningful actions which are changing our firm for the better,” Mr Burrowes
said in a statement.
“We introduced a new business strategy, leadership team and governance board
– including the appointment of an independent chair – new risk systems,
accountability measures and behavioural expectations. We’ve also made changes
to our firm’s shape and size, better aligning our business to meet the changing
needs of our clients and external environment.”
The firm has been reeling since May 2023 when the extent of the tax leaks
scandal, first reported in January of that year, became apparent.
The scandal involved a former tax partner sharing with other partners
confidential details about the federal government’s changes designed to combat
multinational tax avoidance. Those partners then used that information to win
new clients. Partners also developed structures that sidestepped the very same
tax laws that PwC was helping the federal government to design.
The firm’s new independent chairman, John Green, said that he felt
optimistic about the future of the firm.
“Confronting past failings has cast a long shadow for our people. Yet it’s
also thrown a bright spotlight on our huge opportunity: to shape the PwC of the
future,” he said in the firm’s report.
Partner and staff
exits
PwC lost a net 250 partners and a net 3300 staff during the 2024 financial
year, according its new Transparency
Report which outlines its results. About 100 partners and 1000
staff are now part of new
consulting firm Scyne Advisory, which was formed after PwC’s forced sale of
its public sector arm to private equity investor Allegro Funds for just $1.
PwC also cut about 700 staff and almost 40 partners as part of a plan to
reduce $100 million of ongoing costs at the firm. That means about 130 partners
and thousands of staff left during 2023-24. The firm also brought on almost 700
graduates and about 1300 new staff. Overall staff turnover for the year was 32
per cent – roughly double the industry average of about 15 per cent.
The comparable revenue figures are based on income minus expenses charged to
clients. Revenue in the firm’s financial advisory services division – which
includes its tax advisory practice that was at the heart of the leaks scandal –
was down only 2 per cent, to $985 million. Partners in the tax practice have
found that winning new work has been difficult but that existing clients have,
by and large, stuck with the firm.
The assurance business, which includes the all-important corporate auditing
division, was down by 6 per cent, to $770 million. That practice, where the
clients are more sensitive to reputation issues, has lost major clients
including Westpac, but retained Macquarie Group.
Revenue from consulting, when the local division and part-owned regional
consulting business are combined, more than halved to about $1.2 billion. This
was mainly due to the Scyne spin-off and a lower demand from clients due to
soft economic conditions.
These lines of service have since been restructured into three new divisions
– advisory, assurance, and tax and legal – with new leaders.
The firm reported that 55 “serious misconduct complaints” were made, and 38
investigations completed during the year. Twenty-two complaints, or about 58
per cent, were substantiated. Two-thirds of these substantiated cases led to
written warnings, while the remainder were exited from the business.
Challenges remain
Despite the reforms, PwC is still in the political crosshairs and has
significant cultural issues to work through following the tax leaks scandal.
The firm has been continually criticised over the refusal of its parent
body, PwC International, to hand over a report into the overseas aspects of the
tax leaks scandal to parliament – and questions over the role that the overseas
body after it put the Australian business under “supervised remediation”.
PwC has also come under fire for refusing to answer other parliamentary
questions, although the firm maintains it has already answered hundreds of
queries.
Mr Burrowes has also come under fire for failing to disclose for a year to
his partners and his ethics chief that he was paid an extra $1.2 million by PwC
International on top of his pay of $2.8 million from PwC Australia (before
bonuses). He also failed to disclose the additional payment when asked about it
in parliament in February and has denied the dual payments are a conflict of
interest.
Cultural problems also remain, especially in the firm’s tax division. A
follow-up report into the PwC tax and legal division found there had been
significant improvements made to risk processes around how it provides tax
advice and in its relationship with the Australian Taxation Office.
But there remained “a degree of scepticism” from ATO officials that PwC
would be able to put its “values before growth and profit”. The report,
completed in July, found tax officials were still waiting for the purported
change in the firm’s attitude “to be demonstrated ‘on the ground’”.
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Edmund
Tadros leads our coverage of the
professional services sector. He is based in our Sydney newsroom. Connect with Edmund on Twitter. Email Edmund at edmundtadros@afr.com.au
The unlikely silver lining to PwC’s $820m scandal
Myriam RobinRear Window editorThere’s no sugar-coating the horror year had by PwC, revenues now some $820 million less than they were a year earlier.
The firm’s fourth annual transparency report charts the devastation, which in sheer financial terms is considerable.
On a human level, fully a third of the staff have turned over, many not replaced. And far fewer staff (61 per cent) felt pride in working at the firm, down from 86 per cent two years ago. Metrics about those who’d “recommend PwC as a great place to work” suffered similar falls.
Told you it was cultish: PwC’s “The Outside” festival.
But not everything was in the red. One metric – the proportion of employees who said they had been able to find a “balance between work and their personal life” that suited them – has bloomed. In 2022 and 2023, only some 60 per cent managed it. This year, fully 79 per cent were happy with their work-life balance.
This is a dramatic shift, inversely equal to the falls in those who felt pride and belonging at the big four consultancy. Telling us something, we think, about the workforce’s coping mechanisms.
Remember: being employed by PwC used to be like being in a club, or cult, a happy-hippy jamboree (with personal growth smorgasfests like annual festival “The Outside” to prove it).
But the firm’s tax leaks scandal made one’s continuing role as a PwC cog awkward, distressing and unsavoury. No longer something wheeled out at parties as a shorthand to signify status and prestige.
So, what to do instead? One in five staff appear to have used the opportunity to find and prioritise other means of identity and fulfilment. And succeeded in the quest.
We can only applaud their initiative. And hope, as the scandal recedes, they don’t forget the lesson. As a source of belonging and identity, corporate clans will keep you warm when the going’s good. But unlike hobbies, and friends, and family, they aren’t recession-proof.
