PwC tax leaks undermined shareholder trust in audits

afr.com:

Retailer shareholders were “extremely disappointed” by the PwC tax leaks scandal because it raised doubts about the big four firms’ ability to carry out high-quality audits of listed companies, the Australian Shareholders’ Association has told an inquiry into the sector.

Australian Shareholders’ Association chief executive Rachel Waterhouse. AFR

A joint parliamentary inquiry into the way the big four accounting firms are structured also heard on Friday that the scandal was “symptomatic of a structural problem” within the accounting sector caused by the tension between the firms acting to maximise profits while also being expected to act in the public interest.

Shareholders needed to be able to trust financial reports that have been signed off by an auditor, the association’s chief executive, Rachel Waterhouse, told the inquiry on Friday.

“We know from our retail shareholders that they’re extremely disappointed by the PwC failure,” Ms Waterhouse said.

She said that shareholders were also interested in knowing the ratio of non-audit work is being done for a firm’s audit clients over concerns that doing too much non-audit work may colour the audit findings.

The association’s policy and advocacy manager, Fiona Balzer, said bad behaviour within the non-audit parts of the big four created a “taint” around their audits.

“It’s 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,” Ms Balzer said.

“But the taint for the audit firm from the association with the consultancies and the advisories does diminish that trust… So that taint I think is a real impact. And we also see internationally that periodically