EY boss David Larocca calls out PwC’s conduct which has put his industry under scrutiny

EY Oceania chief David Larocca has told a parliamentary committee the PwC tax scandal has done significant damage to partners at the firm.

EY Oceania chief executive David Larocca responds to Senate committee questioning.

EY Oceania chief executive David Larocca has taken aim at PwC Australia for triggering “intense scrutiny” of the consulting sector following the rival firm’s “deeply disturbing and disappointing conduct” in using confidential tax briefings to shape strategies for clients and front-run new laws.

Appearing before a parliamentary inquiry on Tuesday, Mr Larocca, who is also the regional managing partner of EY, overseeing the firm’s Australian, New Zealand and Pacific operations, said the scandal engulfing PwC had done huge damage to partners at the firm.

Mr Larocca, who worked at PwC from 1997 to 2003, said the sale of its government consulting business to private equity players Allegro Funds for $1 showed the firm was “paying an enormous price”.

It showed PwC was “suffering” for its breaches, he said, noting partners had been denied any benefit from the sale of the government consulting business which, he said, should be worth more than $1bn.

“Every partner that stays behind at PwC that has been involved in building that business has given away that business for $1,” he said.

“That is real joint and several liability impacts on every part of that firm.”

Mr Larocca said the added pain inflicted on PwC were the firm’s referral to investigators at the Australian Federal Police and the ongoing Tax Practitioners Board probe.

“PwC has many good people,” he said.

Mr Larocca told the Senate inquiry into the consulting services sector that EY did not engage in the same practices as PwC, which triggered a number of investigations. He said EY’s partners “don’t deliberately breach confidentiality”.

“We don’t use blanket legal professional privilege claims to frustrate regulators, and our business model is not built on condoning, rewarding or covering up this kind of behaviour,” he said.

PwC’s former government consulting business, which has been named Scyne, will be incorporated under a corporate structure, rather than the existing partnership model used by the big four audit and consulting firms.

Mr Larocca said he was open to EY moving to a “corporate-type structure”, amid a criticism of the partnership model.

But he said EY’s partnership model exposed the firm’s partners to significant financial penalties of up to $75m per event.

Mr Larocca said the partnership model was already heavily regulated, with 33 different regulators at both a state and federal level, overseeing the industry.

“We have standards from at least 30 licences or memberships,” he said. “We do not operate above the law.”

But Mr Larocca has backed a call for further regulation of the consulting and audit sector that would deliver “additional oversight that improves public trust and confidence in multidisciplinary professional services firms”.

However, he warned this should be done in a “thoughtful, considered and consultative way, with a clear focus on the problem looking to be solved”.

The inquiry heard calls on Monday from former competition tsar Allan Fels to push for a split of audit and consulting operations in Australia’s professional services firms.

EY had mooted a plan to split its audit and consulting arms in a massive global project dubbed Project Everest but this was ditched in April after the firm failed to agree on how to separate the different operations.

Mr Larocca said the split of EY into an audit and consulting arm would have allowed it to serve “a wider range of clients than they are able to today, due to strict independence rules that govern our audit relationships”.

But he warned audit work increasingly needed specialist functions outside the audit practice, “and I only see it going one way”.

Mr Larocca said EY had its own issues, with the death of a staff member last year triggering a cultural review from former sex discrimination commissioner Eliz­abeth Broderick.

Mr Larocca said the report into the firm was due at the end of July, warning he expected it would reveal “some uncomfortable matters”.

Appearing later on Tuesday, pureplay consulting firm Accenture said that it was not exposed to the same conflicts between audit and consulting present in its competitors.

Accenture chief executive Peter Burns said the firm was “very clearly about helping government execute” projects.

“The processes and regimes we put in place I would imagine would be every bit as robust, if not more robust, as an organisation with other lines of practice,” he said.

Originally published as EY boss David Larocca calls out PwC’s conduct which has put his industry under scrutiny