The recent PricewaterhouseCoopers (PwC) scandal has brought to light what many are calling a structural issue within the accounting sector. The controversy has sparked doubts about the ability of the "big four" accounting firms to conduct high-quality audits of listed companies, as noted by the Australian Shareholders' Association (ASA). According to a report in The Australian Financial Review, the ASA has expressed deep concerns over the scandal and emphasized the importance of shareholders being able to trust financial reports signed off by auditors.
"We know from our retail shareholders that they're extremely disappointed by the PwC failure," stated Rachel Waterhouse, the association's CEO. The scandal revolves around allegations that PwC Australia shared confidential government information on future tax legislation with clients and partners for commercial gain.
In response to the situation, the ASA has called on the Australian government to implement pending recommendations from a prior parliamentary inquiry into audit quality. Fiona Balzer, the policy and advocacy manager at the Australian Shareholders' Association, highlighted the adverse effects of questionable practices within the non-audit divisions of the big four accounting firms on their audit functions. She referred to this as a "taint" that diminishes trust in their audit services.
"The impact of the auditing on the financial markets' confidence, and the individual investors, when things go awry in audit where accounts are misrepresented and money is lost," Balzer explained. She also pointed to international occurrences of similar behaviors that periodically erode trust. The collapse of the UK government contractor Carillion in 2018, which was being audited by KPMG UK, was cited as another example of a failure that damaged confidence in corporate auditing.
Balzer emphasized the challenge that retail shareholders face, relying on trust that the financial numbers are accurate, as they may lack the resources and expertise to scrutinize the figures. Events like the PwC tax leaks scandal, she noted, call this trust into question.
The committee investigating these matters intends to present its findings to Australia's Parliament by mid-2024.
By fLEXI tEAM