PwC scandal triggers big split risk for consulting giants

The global consulting firms that dominate Australia’s corporate and government sector could be forced to operationally separate their audit business to avoid conflicts and open up to greater financial scrutiny under proposals recommended by a parliamentary inquiry triggered by the PwC tax scandal.

The report also recommends that these private firms be limited to 400 partners, and that they be prevented from offering both audit and non-audit work – like consulting services – to the same client. This would be a big blow for firms such as PwC which, in 2022, received more than $79 million in fees from Macquarie Group alone.

“This report is the legacy of the PwC tax leaks scandal, and the sector-wide misconduct that was uncovered in the aftermath,” Senator Deborah O’Neill, chair of the parliamentary joint committee on corporations and financial services, said after the report was released.

Committee chair Deborah O’Neill: “This report marks the end of impunity for a sector which has, for far too long, thrived in darkness.”Credit: Alex Ellinghausen

She said the recommendations will reshape the industry with evidence-based solutions that have proven successful elsewhere.

“This report marks the end of impunity for a sector which has, for far too long, thrived in darkness.”

The report recommends that firms with more than 3000 employees should prepare financial accounts and adopt the transparency practices of the corporate clients they work with under the Corporations Act.

Another recommendation is that the government work with the industry to create a code of conduct for consultants – and set up an associated compliance body within government that will register individual practitioners.

“Right now, the consulting sector benefits from deliberate ambiguity. Many consultants across government and the private sector are operating without any safeguards as, unlike lawyers, accountants, electricians, nurses and countless other professions, they do not have any formal qualification requirements or regulatory body,” O’Neill said.

Committee member Senator Barbara Pocock was supportive of the report but said it did not go far enough. She wants further changes, including a ban on political donations by the big firms and a cap on partner numbers reduced to 100. “We need systemic change to ensure that the PwC tax leaks scandal can never happen again,” she said.

The inquiry into the consulting sector also recommended that the ban on PwC receiving new government contracts should stay while investigations continue into the scandal by agencies, including the Australian Federal Police which raided its Sydney headquarters this week.

Greens senator Barbara Pocock at a parliamentary hearing.Credit: Alex Ellinghausen

The AFP began a criminal investigation into PwC and its former partner Peter Collins in May last year over the scandal, which came to light after a Senate committee released emails that revealed dozens of PwC personnel were involved in a brazen attempt to use confidential government tax plans to create fresh business from notorious tax avoiders such as Google and Facebook.

The revelations have led to more than 700 staff and dozens of partners leaving PwC Australia, including chief executive Tom Seymour, and a splintering of its local operations including the spin-off of its government relations arm into a new firm, Scyne.

In July, the Federal Treasury confirmed it was reviewing an unknown number of foreign takeovers involving PwC after the embattled consulting firm was accused of misleading the Tax Office to help its clients receive Foreign Investment Review Board (FIRB) approval.

PwC’s behaviour remains a major issue. Recent revelations show the international group took over the Australian operation in May last year and demanded approval for all submissions to legal and regulatory bodies, without giving public notice of this change.

PwC said it would consider the report’s recommendations.

“Over the past year, we have made significant progress in the transformation of our firm, including new leadership and strategy, enhancing our governance, and building a leading culture. We remain focused on delivering the best outcomes for our clients, people and communities,” it said in a statement.

The Market Recap newsletter is a wrap of the day’s trading. Get it each weekday afternoon.