PwC is hopeful that publication of its first ever digital version of its transparency report will make it easier for stakeholders to navigate, and provide them with a new and improved way to engage with the information they are interested in – as the focus on enhancing audit quality continues apace.
The firm first published a dedicated transparency report in 2009 alongside its Annual Report as a PDF on its website, but 12 years later, in October 2021, the firm moved forward to publish its first fully digital transparency report.
The report provides information on the firm’s systems of quality control over audits, and includes details on its audit quality processes, independence and principal risks. More specifically to PwC, this year the reporting focuses on the firm’s inspection results, progress on its ongoing Programme to Enhance Audit Quality (PEAQ), the role of its new Audit Oversight Body, and the importance of culture in driving audit quality.
Auditors of certain public interest entities have a legal requirement to publish annual transparency reports, in accordance with the Statutory Audit Directive. Reports should also communicate a balanced self-assessment of the challenges the firms face in relation to audit quality and the effectiveness of their actions to overcome them, and promote confidence in their systems, processes and governance.
Against a backdrop of increased scrutiny of audit, transparency reporting by large audit firms is more important than ever. High-profile corporate failures have fuelled questions about whether auditing in its current form meets the needs of users of financial information.
The Financial Reporting Council (FRC) says transparency reports present an opportunity for the firms to provide relevant, reliable and useful information that facilitates engagement between firms and users of financial information. And yet, the regulator has long warned that engagement across all of the firms’ transparency reports by their intended beneficiaries – principally investors and Audit Committee chairs and members – has historically been low. The FRC’s 2019 transparency reporting Thematic Review warned of a lack of awareness that the reports exist. Even among those aware of the reports, the review said they were too long and overly positive to be useful.
“This is unsurprising given that many of the firms have seen the reports as a marketing opportunity rather than solely an accountability or compliance document,” the FRC remarked. “On that basis, transparency reporting by the large accountancy firms that perform audits is not currently effective.”
Sotiris Kroustis, PwC’s UK Head of Public Policy, told ICAEW Insights: “One of the main reasons we decided to move to a digital transparency report this year has been the improved engagement we’ve seen with our Annual Report since publishing it digitally over a number of years. Specifically, we’ve found that providing users the option to more easily navigate directly to the sections of most relevance dramatically increases accessibility and engagement.”
Although the information firms are required to include in their transparency reports is fairly extensive, not all of the detail is of interest to all stakeholders who range from investors through to audit committees and the regulator, Sotiris explains.
The new digital transparency report continues to meet all of PwC’s regulatory reporting requirements, but it creates a new set of online modules – across areas including firmwide governance, independence and ethics, people, and audit quality – to better facilitate navigation of the report’s information. Video content from a number of senior leaders, Independent Non Executives and culture champions from across the practice, including UK Chairman and Senior Partner Kevin Ellis, and Head of Audit Hemione Hudson, helps bring the subject matter to life and increase engagement.
“The modules are designed to break the 100+ page report into more focused, bite-sized chunks, which makes it easier for stakeholders to navigate and digest the content most relevant to their needs,” Sotiris says.
At the same time, the digital report allows the firm to better understand what information readers are most interested in. Through the use of eye-tracking software, and by analysing video-viewing figures and assessing individual download numbers, PwC is able to determine the modules of most interest to stakeholders. For their most recent report, readers most engaged with the content specifically focused on audit quality, including PwC’s PEAQ and its work on audit culture, Sotiris explains. “Our people are at the heart of delivering high-quality audits, which is why we are focused on creating the right culture for our audit teams.”
At the start of the PEAQ, PwC commissioned an independent paper from Professor Karthik Ramanna, Professor of Business and Public Policy at the University of Oxford’s Blavatnik School of Government on building a culture of challenge in audit firms. “We used this independent perspective, along with PwC’s cultural experts in our People and Organisation team, to review our culture and develop our three critical behaviours that support audit quality: ‘Team first’, ‘Challenge and be open to challenge’ and ‘Take pride’,’’ Sotiris says.
“Everyone across our audit practice is expected to demonstrate the same core behaviours that we believe are central to audit quality. We’ve embedded these into everything we do, including our training and how we evaluate performance. We’re pleased with how our people have embraced these changes, and it’s really positive to see that our stakeholders are interested in reading about the progress we’ve made.”
Sotiris says the insights provided by the digital transparency report will help the firm continue to refine its approach to publishing the report in future years. “This means that while we continue to meet our regulatory requirements, our future reports can focus on the areas readers are most interested in with the appropriate level of detail. We’re also seeking direct feedback through the site from the users of the report to ensure we’re meeting our stakeholders’ needs.”
Certainly, it is a strategy that appears to be bearing fruits. PwC’s analysis shows that one month after it was published, visits to PwC’s transparency report page had already increased more than 40% on the previous year – an upward trend the firm hopes will continue through 2022, and a compelling reason for other audit firms to follow suit.
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