Wednesday, November 08, 2023

Westpac to dump PwC as its auditor

 

PwC cuts jobs as Westpac dumps firm after 20 years in wake of tax scandal

PwC is cutting hundreds of staff after Westpac ended a 20-year relationship with the embattled firm that generated more than $70 million in fees over the past two years alone.

It said more than 340 staff would be cut as its consulting business gets crunched by the fallout from the tax leaks scandal, the spin-off of its government business and general economic conditions.



Westpac to dump PwC as its auditor

Westpac is preparing to remove PwC as its external auditor and put the work up for tender in a move that will reshape the audit landscape for the critical financial services sector.
The major bank told the ASX on Wednesday morning it had commenced a search for its external audit services and that PwC, the current provider, “has not been invited to participate in the tender”.
The bank said the decision to tender the audit role “reflects best practice for audit firm rotation”. Will Willitts
The bank said the decision to tender the audit role “reflects best practice for audit firm rotation”, and that not inviting PwC was “due to their tenure as the group’s external auditor”.
The short ASX release did not mention the tax scandal that has engulfed PwC this year.
Under emerging corporate governance principles, boards are being encouraged to put audit to tender every five years, breaking the cost relationship that can develop between auditor and company.

Long-time auditor

PricewaterhouseCoopers was appointed by Westpac shareholders as auditor in 2002, and individual accountants, who were partners of PwC or its antecedent firms, have been the external auditors since 1968, the bank said.
Over the last five years, PwC has been the biggest recipient of audit and non-audit work from the major banks, raking in $700 million since the 2017 financial year.
PwC’s take of audit and non-audit work from the five largest banks rose from $98.4 million in the 2017 financial year to $136.6 million in 2022, mainly through big auditing contracts with Commonwealth Bank, Westpac and Macquarie.
The move to exclude PwC from re-tendering for its audit services comes ahead of Westpac’s annual general meeting on December 14.
Commonwealth Bank, which also uses PwC for external auditing services, faced questions at its AGM last month from shareholders concerned about its retention of the embattled firm.
CBA chairman Paul O’Malley said he had met new PwC chief executive Kevin Burrowes twice, and while the CBA board had been “concerned about developments” at PwC, it was comfortable the independent audit services it was receiving remained “first class”.

‘Conversations’ with PwC

Mr O’Malley assured shareholders that “given everything that has happened [the board] have had, and will continue to have”, conversations about ongoing retention of PwC and will continue to rotate the audit partner at least every five years.
Macquarie is also audited by PwC. Macquarie’s chairman Glenn Stevens told shareholders in July that it would review the relationship and would “take into account the culture and [any] reputational matters” before continuing with the firm after the damaging tax leaks scandal.
Bank of Queensland is also audited by PwC. National Australia Bank is audited by EY, while ANZ Bank is audited by KPMG.
A PwC spokesman said on Wednesday morning it was “proud to have served the shareholders of Westpac Group” and that the firm understood the board’s decision.
“[PwC] will prioritise the performance of our role with commitment and diligence for our remaining term,” the spokesman said.

PwC tax leaks scandal

PwC has been embroiled in unprecedented drama this year after The Australian Financial Review revealed that a former partner shared confidential government information with other PwC personnel who then used the information to assist corporate clients with tax planning.
This triggered a range of investigations, including a broader Senate inquiry that is trawling through its fellow auditors KPMG, EY and Deloitte, as well as consultants Accenture, Boston Consulting Group and McKinsey.
Outside the banking sector, big property companies are also turning away from PwC. For example, the firm was favourite to win the external audit tender for Lendlease, but the company turned away from the firm in May as the scandal accelerated.
Find out the inside scoop about Accenture, Deloitte, EY, KPMG, PwC and McKinsey. Sign up to our weekly Professional Life newsletter.
James Eyers writes on banking, payments and fintech. He is a former legal and investment banking editor at the AFR, has degrees in commerce and law from UNSW, and is co-author of Buy now, pay later: The extraordinary story of Afterpay Connect with James on Twitter. Email James at jeyers@afr.com.au
Lucas Baird is a journalist based in The Australian Financial Review's Sydney office. Connect with Lucas on Twitter. Email Lucas at lucas.baird@afr.com
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

PwC cuts hundreds of jobs as scandal, slowdown hit


Edmund TadrosProfessional services editor

KEY POINTS

  • Why it matters: Consulting firms are cutting staff as public and private sector demand falls.
  • Context: The fall is due to the PwC tax cuts scandal, Labor cutting external advisers and the uncertain economy.
  • What next: The cuts are happening globally and the market is unlikely to pick up until next year.
Listen to this article
5 min

The nation’s once dominant consulting firm, PwC Australia, will cut 344 roles, or more than 4 per cent of its 8000-strong workforce, as fallout from its tax leaks scandal and the economic slowdown reduce demand for its services.

The scandal has caused advisory clients to shun the brand and bedrock auditing clients also appear to be reassessing their relationship with its market-leading auditing business. On Wednesday, Westpac took the aggressive stepof specifically announcing it would not reappoint PwC as its auditor when it put the contract to tender.

PwC’s cuts are the largest of their kind at a major consultancy in Australia.  Martin Ollman

PwC’s cuts are the largest of their kind at a major consultancy in Australia and follow KPMG cutting 300, or 3 per cent of its workforce of 10,000, and Deloitte cutting dozens last month. The local major advisory firms are also, variously, cutting back on recruitment, cracking down on expenses and travel costs, and deferring graduate start dates.

The local cuts come as the once unstoppable advisory sector faces a reckoning around the world after the turbocharged growth caused by the COVID-19 pandemic and its immediate aftermath. High interest rates, a slump in mergers and acquisitions, and a growing number of scandals have caused private and public sector clients to defer or delay hiring the firms.

Affected staff were told on Wednesday they were being made redundant. The cuts mean PwC will effectively shut down its Adelaide-based Skilled Service Hub. That will make 141 staff redundant, while another 197 staff across the firm will also be cut. Another six PwC staffers who declined to move to Scyne are being terminated and will not be eligible for statutory redundancy because they were offered like-for-like roles.


Extremely difficult decisions’

“These are extremely difficult decisions and my thoughts are with all of those people and their families impacted by the changes we have been forced to make,” PwC Australia chief executive Kevin Burrowes said in a statement.
“While we are optimistic about the future, PwC must take pragmatic action to manage these challenges and make difficult decisions to meet the needs of its clients and to ensure the long-term success of the firm.
“In South Australia and across the rest of the country, we will continue to serve our clients with the highest degree of quality and professionalism – and we are grateful to our people for the resilience and dedication they have shown their clients.”
About 200 skilled services staff members will continue working for the firm, from PwC’s Adelaide office. Scyne’s Adelaide operations have taken over some of the office space within the centre.
Mr Burrowes was in Adelaide on Wednesday to personally brief staff about the cuts, which were announced on the same day as the deal to create Scyne is finalised. Scyne, made up of roughly 100 former PwC partners about 1300 former staff, will officially begin operating as an independent public sector-focused advisory from Monday.

PwC consulting revenue down

Revenue in PwC’s consulting division is down 40 per cent, or $125 million, since July, at $200 million compared with $325 million at the same time last year, The Australian Financial Review has been told. On a like-for-like basis, which removes the public sector consulting business that has become Scyne, the decline is about 8 per cent.
Across the consulting sector, leaders want to urgently cut costs amid a widespread belief that the lower level of private and public sector demand in Australia will continue until at least until Easter, and possibly until the 2024-2025 financial year starts in July.
The problem is particularly pronounced in Australia because the use of consultants by federal and state governments has fallen off a cliff since the extent of the PwC tax leaks scandal was revealed in May. At the same time, federal Labor has aggressively moved to cut the use of consultants and contractors as part of its policy to bring skills back into the public service.
Firm leaders are having to weigh up the hit to partner profits caused by continuing to pay staff unassigned to client project for an extended period versus the risk that a rebound in demand will leave them short-staffed. The affected staff, for their part, are angry they have been cut loose in a difficult jobs market and as the Christmas slowdown approaches.
Globally, the firms have cut staff numbers aggressively in 2023. In March, Accenture announced it would cut 19,000, or 2.5 per cent of its global workforce. This followed news that McKinsey would 2000, or 4 per cent, of its total workforce. In April, EY US cut 3000, of 5 per cent of its workforce, after its failed push to spin off its consulting arm, KPMG US has cut about 2700, or 7 per cent of its workforce, this year, while Deloitte has cut 1200, or 1.5 per cent of its workforce.
Find out the inside scoop about Accenture, Deloitte, EY, KPMG, PwC and McKinsey. Sign up to our weekly Professional Life newsletter.
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

PwC cuts hundreds of jobs as scandal, slowdown hit


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