Wednesday, July 12, 2023

PwC and rivals Deloitte, KPMG air dirty laundry: KPMG and Microsoft’s AI deal is an $18b taste of what’s to come

The 2018 breach is separate to the existing scandal over tax policy information that has triggered a reputation crisis for the firm …

 This breach involved a PwC staff member entering into an exclusivity agreement with a client without proper authorisation from the firm’s conflict of interests team.

PwC Australia has revealed that former chief executive Tom Seymour was the highest-paid partner at the firm, taking home $4.6 million in 2021-22, and that the firm received dozens of misconduct complaints against partners during the past five years.

PwC and rivals Deloitte, KPMG air dirty laundry in Senate inquiry

PwC Australia and its rivals Deloitte and KPMG have listed a litany of misconduct in response to queries from a Senate inquiry, as fallout from the tax scandal engulfing PwC casts a wider shadow on the professional services sector.

PwC revealed a list of past instances of misconduct on Wednesday, saying that it was aware of 119 separation arrangements that have been entered into over the past five years.

While most of these related to underperformance, two related to incidents of sexual harassment and six to bullying. The largest payment related to the separations was $331,282.

The statements were made in reply to questions on notice from Greens senator Barbara Pocock as part of the Senate inquiry into consulting firms.

PwC’s rival Deloitte in its response to a question on notice, meanwhile, reported that 28 people had been disciplined for the misuse of confidential or proprietary information in 2022 and 2023.

One of the incidents relating to the misuse of confidential information was a substantiated case of the misuse of government information last year, Deloitte said.

The firm added it had also dealt with 38 substantiated claims of sexual harassment over the two years.

“Over the last two years, three partner retirement deeds related to exits from the firm for reasons involving allegations of sexual harassment, bullying or discrimination,” Deloitte said.

“In relation to employees, we confirm that over the past two years, a total of 18 employment related separation agreements have been executed with four involving allegations of sexual harassment, bullying or discrimination,” it added.

Another of the big four consultancies, KPMG, told the inquiry that 22 people had been fired from the firm over the last two years over code of conduct breaches – including one for sexual harassment.

“None of the reports involved sexual assault,” it said of the 12 complaints over the two years,” KPMG said.

PwC said in its response to the inquiry that it had dealt with more than 100 complaints of sexual harassment since the 2019 financial year – including 19 last year. It dealt with a further 12 formal complaints of bullying last year.

PwC said that former CEO Tom Seymourwas its highest-paid partner last year earning $4.6 million, as it confirmed to the inquiry that an employee was disciplined in 2018 for not following conflict of interest procedures.

“There is no second misuse of information breach,” a PwC spokesman said regarding the tax scandal in which a former partner shared confidential information on combating tax avoidance.

“PwC, like other firms, was asked about disciplinary actions and PwC confirmed it had taken discipline against a partner over an internal process oversight where the partner did not obtain approval for an exclusivity undertaking in an engagement.”

Earlier this week, the embattled firm said that it would no longer make political party donations as it attempts to rebuild its reputation and business following the tax scandal.

“PwC Australia will no longer make political donations, with none to be made in FY24. This includes payments to attend fundraising events, in-kind donations for event hosting/catering and other direct donations,” PwC acting chief executive Kristin Stubbins told the firm’s partners on Monday.

PwC has been forced to offload its entire government business to a private equity group Allegro for $1, after its plans to ringfence the business – as part of a plan to avoid conflicts with its private sector business – proved inadequate.

Stubbins said the announcement would be her last as acting chief executive before handing over to new CEO Kevin Burrowesnext week.

KPMG and Microsoft’s AI deal is an $18b taste of what’s to come

The new partnership to roll out artificial intelligence tools for audit, tax and advisory projects raises questions about the future of work and regulation. 

If you need yet another example of the sheer pace with which the generative artificial intelligence revolution is sweeping through the economy, look to the expanded partnership between accounting and consulting giant KPMGand tech giant Microsoft that launched on Wednesday morning.

The two groups are long-time partners, and it was only in May that they announced something called the AI Innovation Initiative. This sought to deploy Microsoft’s AI-enabled services into KPMG’s back-office functions and investigate how AI might be used across tax, audit and advisory work.

AI is coming to the professional services sector at a rate of knots.  David Rowe

Now, just two months later, they apparently have the confidence to announce a newly expanded partnership that will speed up the deployment of AI tools into those core functions and create what they say is a $US12 billion ($18 billion) growth opportunity for KPMG.

There’s no detail on where or how that figure was arrived at, of course, and the initial details of the deal are somewhat sketchy. But what morsels we have been given prompt two fascinating questions: how will AI remake white-collar jobs, and how will regulators think about work delivered by AI?

In audit, Microsoft and KPMG say “85,000 audit professionals who collectively work on hundreds of thousands of audits a year will be empowered to focus more closely on higher-risk areas of the audit, sector-specific risks and challenges … to the benefit of both stakeholders and capital markets”. They also say AI will allow KPMG to see into client data directly, rather than having to ingest it, which could help “enable KPMG professionals to perform audits on a more real-time basis”.

The idea of audits that could identify risks as they come up, rather than months after a company closes its books, seems like a good thing. But there are wrinkles that are worth considering.

The big questions

First, what happens to the staff who are now doing the grunt work that lies at the heart of audits? This would seem to be a near-perfect example of the way AI could wipe out a big chunk of more process-driven, data-driven jobs relatively quickly.

Second, lower staff costs are presumably a part of KPMG’s $US12 billion growth opportunity. But how will the benefits of these lower costs be split between the tech provider Microsoft, the professional services provider KPMG, and the client?

Finally, how will corporate regulators such as the Australian Securities and Investments Commission, which has been perennially concerned about the quality of audits, think about the idea of even less human involvement in this vital assurance work? Will ASIC be more inclined or less inclined to trust an audit partly or mainly delivered by AI? Will ASIC need to get across the way AI technology has been trained before it can be comfortable? Does regulation need to change to account for this?

Similar changes are coming to tax. KPMG staff will get an AI-powered “virtual assistant” that will “help tax professionals become more efficient” and presumably help KPMG employ fewer of them over time.

But clients will also get access to AI-enabled tools to help them “gain more integrated and transparent access to their data and take a more holistic management approach to their tax functions”.

Although more data, more transparency and better management of tax affairs sounds like accounting nirvana, will the Australian Taxation Office need to consider how it thinks about AI-enabled tax work? For example, will AI models be trained on the ATO’s interpretation of tax laws, or a firm’s more or less aggressive interpretation?

None of these issues is insurmountable or even particularly new – technology, and particularly automation, has been changing the way professional services work has been done for years. But the speed at which AI is developing, and the level of automation and decision-making it offers, would appear to pose a fresh wave of questions for companies, regulators and policymakers.

And we’re already playing catch-up.

James Thomson is senior Chanticleer columnist based in Melbourne. He was the Companies editor and editor of BRW Magazine. Connect with James on Twitter.Email James at