PwC global chairman says threat of Big Four break-up ‘real’
Bob Moritz said targeted solutions should be considered before dismembering major players.
The global chief of PwC has described threats to break up the Big Four accountancy firms as “real”, but warned that such a move would not solve the industry’s problems.
Bob Moritz confirmed that while contingency plans were in place for a break-up, politicians should implement targeted solutions before deciding to dismember major players.
“The threats (of a break-up) are real and the challenges are real but let’s be clear in terms of what problem we’re trying to solve,” he told the Press Association in St Petersburg.
“In some cases it’s bad audit quality … in other cases, it’s managing conflicts of interest which is probably more of the prevailing issue right now that seems to be coming out, particularly around the Carillion case.”
Mr Moritz said there were also concerns around a lack of competition.
“Those are three different challenges that require three very different solutions so I think it’s too easy to generalise (and say) we’ll break up the firms because that doesn’t solve problem A, B or C in terms of what actually is the root cause issue right now.”
A damning parliamentary report released earlier this month called on the Competition and Markets Authority to examine a break-up of the Big Four following failings exposed by the collapse of Carillion.
The construction and outsourcing giant left behind a £900 million debt pile, a £590 million pension deficit and hundreds of millions of pounds in unfinished public contracts.
The Big Four – KPMG, PwC, Deloitte and EY – were accused by MPs of “prioritising their own profits ahead of good governance at the companies they are supposed to be putting under the microscope”.
Professional services firms have pocketed around £71.6 million in Carillion-related work since 2008, including on its pension schemes, according to a separate report by the committees.
Mr Moritz said underlying contingency plans have already been formed thanks to scenario planning requested by the regulators.
“The regulators in the UK did ask for scenario plans as we think about – if, in fact, there was a massive failure – are we too big to fail and what are those ramifications, and then how would you manage through that right now.
“And so I would say those were early stage processes to make sure we are able to manage the risk if, in fact, a failure happened.”
We need scale to have the right investment, the right ability to actually manage the costs associated with what we do, and the right amount of capital to actually survive the threats when in fact things go wrong. Bob Moritz
But Mr Moritz said it was important to consider other solutions, including “encouraging the audit firms themselves to do a better job around delivering quality, and managing stakeholder expectations.”
He said some firms were “doing better than others.”
“In the case of conflicts of interest I think people need to understand … what are we doing, because we do make choices about what projects to take on and not take on.”
The PwC global chairman said the issue of competition was more challenging.
“The question is can we get more competitors in, and are they willing to put forth and put their capital at risk to do that right now,” Mr Moritz explained.
He also defended the size of major players like PwC.
“We need scale to have the right investment, the right ability to actually manage the costs associated with what we do, and the right amount of capital to actually survive the threats when in fact things go wrong.”