PwC will spend £30m a year to overhaul its audit business and split the practice in two in response to rising criticism of the accounting industry from politicians and regulators.
The Big Four accounting firm on Wednesday announced a drive to strengthen audits, including hiring an additional 500 experienced audit professionals.
The move comes in response to heated criticism of the audit profession from politicians, regulators and academics over the past 12 months on the back of a series of accounting scandals at large UK companies including Carillion, Tesco, BT and Patisserie Valerie.
Against this backdrop, auditors have been accused of failing to review clients’ accounts with enough scepticism and of pandering to the demands of company management. PwC itself has been heavily criticised over its audit work for collapsed retailer BHS.
Hemione Hudson, head of audit at PwC, said: “There has been a lot of debate and scrutiny of our profession for many months, so we have spent many months thinking about what is the right response.
“It is all about audit quality and what we need to do for our business to ensure we have the highest quality consistently across all of our practice.”
PwC plans to split in two its audit practice, which currently houses 5,500 auditors. One business would focus on traditional “external” audits. A separate business would carry out “internal” audits for management, alongside cyber security and technology risk reviews.
The firm will also double the amount of time its experienced auditors spend in face-to-face training programmes annually, and increase by two-thirds the number of specialists in its audit quality control team.
PwC said it had also commissioned Karthik Ramanna, professor of business at the University of Oxford’s Blavatnik School of Government, to write a paper on “what a culture of challenge means for auditors in 2019”.
Prof Ramanna, an outspoken critic of the industry, said: “With all of the UK’s political and regulatory uncertainty, more responsibility will fall on the audit firms themselves and on civil society to carry forward improvements to audit quality. To this end, I look forward to producing an independent paper on the ‘culture of challenge’ in auditing today. I hope the paper will help in some small measure to drive changes that restore public trust in auditing.”
The government launched several reviews of the audit profession last year in a bid to restore trust, including a landmark review of the industry regulator and an inquiry into the future of audit. Separately a cross-party panel of MPs examined the audit profession at the start of the year, while Britain’s competition watchdog called for an overhaul of the sector in April.
All of the Big Four accounting firms, which also include EY, Deloitte and KPMG, have put in place new measures to combat concerns about the quality of their audit work in recent months, such as promising to stop providing consulting services to audit clients.
KPMG had gone further than its peers by pledging to restructure its audit division last month so that it had a more separate performance management and governance structure.