THE FOUR YEARS SINCE Ian Powell was made chairman and senior partner of PwC have been a tumultuous period for the firm - and for the industry as a whole.
Since his appointment in 2008, having joined the firm as a graduate trainee in 1977, Powell has contended with the fallout from the banking crisis - in which the finger of blame was pointed at auditors for failing to spot the bad debt on banks' balance sheets - and resultant probes into the profession in the UK and Europe.
In many ways, it has been a defining period for the profession. However, Powell, re-elected as chairman for another four years in March, expects the future to be just as important, but hopefully without the dark cloud cast by the banking collapse.
Developing the international markets is where the next battle ground is likely to be. It is not unrealistic to expect a number of Chinese firms to challenge the dominance of established international accounting networks in the near future.
No wonder, then, that PwC is pumping up to $1bn (£620m) into building its business in fast-growth markets over the next three years. The professional services industry is shifting away from Europe and the US.
In October, PwC posted record full-year revenues of $31.5bn, driven by double-digit growth in China, India, Russia and Brazil. Revenues from developing markets now account for 20% of PwC's aggregate global revenues and are expected to reach 40% by 2017.
Knowing where to put the investment is "probably the number one question for the leadership team", says Powell, who leads PwC's central regional cluster that encompasses Europe, Middle East, Africa and India. The obvious mega-trends over the next 20 years are aggressive growth in territories like the BRICS, but there are a lot of other interesting locations.
"There is massive growth potential in Africa," says Powell. "There is also a really interesting set of trade flows that have developed between South America, the Middle East and Africa. We are investing in each of those areas."
Like Deloitte, which is to invest $750m in boosting its operations in strategic territories, Powell says the shift to high-growth markets heightens the need to attract talent and make sure it is located where it is needed.
"When you have developed, slow-growth, countries with experienced skill sets, and really fast-growth economies with a limitation on resources, it's not rocket science to move one to the other," says Powell.
Moving staff geographically within the business has also helped PwC dilute some of the negative effects of the weak economy. In August, Big Four rival KPMG announced that up to 3% of its UK headcount of about 11,300 could be at risk unless economic conditions improve.
Although KPMG is the only Big Four firm to have announced the risk of job cuts, many firms have retrenched and KPMG is indicative of a wider malaise. A combination of limited merger and acquisition and IPO activity among corporate clients, as well as extreme price competition for audit work, has contributed to a downturn in operating profits among the Big Four.
According to the latest Accountancy Age Top 50 +50, PwC posted operating profit of £656m, down from £680m, and the firm conceded that conditions have deteriorated. However, Powell says the firm has been able to reassign people to different parts of the business.
"There is growth in the market. There are good opportunities," he says. "You need to look for outlets for your people. The redeployment of our people into those fast-growth markets overseas is crucial. We need to be agile in order to be able to move our people quickly to the markets that need them."
Consulting has been another important area of growth for the firm. Globally it was PwC's fastest-growing service line, pulling in $8.7bn of income. Like its rivals, PwC offloaded its consulting business - centred around implementing IT systems - ten years ago because of a concern it conflicted with its audit work.
"There was an inherent conflict building inside the firm," Powell says. "But our clients still needed traditional consultancy services. We have grown realty well in consulting over the past four years and are investing a lot in the business."
Competition and choice
If the future is filled with opportunity, it is fair to say that the past has been dominated by recriminations from the banking collapse. The profession was blamed by politicians and regulators for being too cosy with the companies it purports to audit. The result, the critics argued, was the firms' inability to spot, or address, the calamitous liabilities building up on the banks' balance sheets.
Regulators, both at home and abroad, have turned their gaze on the way the profession operates. The UK Competition Commission is due to reveal findings into its inquiry into the Big Four's dominance of the FTSE 350 audit market, while the European Commission simultaneously looks at reforming the audit market to improve quality.
Powell is broadly supportive of any changes that will improve the quality of audit work, but nor is he an apologist for the profession.
"I think the auditors did a good job during the financial crisis because they were operating within a set of standards and controls," he says. "What happened was systemic; it was global. I don't think you can apportion blame to any particular group."
That is not to say the profession should not heed what happened - far from it. Powell says that regulators and the auditors need to go back to the 1990s when "really good communication" existed between the parties.
"Both sides were probably culpable in that they didn't communicate as well as they needed to," he says. "We need a system whereby auditors can talk to regulators if they have an issue and regulators can talk to the auditors if they see systemic issues developing."
Despite the acceptance that things could be done better, Powell does not accept that proposals on the table by the EC - namely mandatory auditor rotation and enforcing joint audits - are a panacea to the perceived problems faced by the profession.
Powell's stance is largely because he feels the EC proposals are not addressing quality. "Anything that should be done should be geared towards improving audit quality. A lot of the discussion in the EU has actually been about competition-type issues," he says, adding that there is a lot in the proposals he supports - such as enhancing auditor reporting on financial statements.
Mandatory rotation is probably the thorniest issue of all. "That removes competition," Powell says. "You have immediately taken covenant out of the equation. You might have a fantastic audit team doing a fantastic job, and they have to be eliminated."
Joint audit is another proposal with which Powell disagrees. According to Powell, rather than improving quality, joint audits will be detrimental.
"You can have joint audits today; it's not illegal," he says. "People choose not to have them for the very reason that over the years people have found that when you have got two auditors, there is the risk that you don't cover everything between them. It's the market that has chosen that joint audits don't work, not us."
Unlike the reforms taking shape in Europe, the Competition Commission inquiry is seen as being forensic in nature, and not beset by political positioning. It is likely the industry will have to abide by its findings - the worst case, though unlikely, would be breaking up the Big Four.
According to Powell, the commission should be careful to make a distinction between competition and choice.
"It would be better if there was more choice, but I don't think anybody should make the mistake in thinking there is no competition." he says. "It's ferocious. Every piece of work we do, whether on audit or consultancy, is hard fought and the pricing pressure at the moment is significant.
"It strikes me that pricing pressure is a pretty good example of competition."
The unreachable goal
The ongoing investigations into the audit market have serve as background music for Powell's eight-year tenure as senior partner, but it is PwC's position in the market, and the work that has been done to encourage diversity among the firm's top staff, that he wants to remembered as the outstanding theme of his time at the helm of the UK practice.
According to The Times, 15% of PwC's 900 partners are women - the best percentage tally apart from Ernst & Young among big firms - but Powell still believes the firm needs to accelerate the promotion of diversity across the business.
"We have a lot of different activities," he says. "For example, every member of the executive board directly mentors three women partners and then we expect those women partners to mentor other women so you get a cascade effect."
When Accountancy Age first spoke to Powell on his appointment as senior partner, the word iconic kept on turning up. As the world's largest accountancy firm what do you strive for? Back then, Powell said the firm should strive to be iconic in its industry.
While Powell is loath to refer to PwC as having achieved that status, he does agree that it should be a guiding principle of the business.
"Maybe we will never achieve that status, but it is a good aspiration," he says.
"Having that focus has been really motivational to us as a firm and it has made us do things and challenge ourselves in a way that we wouldn't have done otherwise.
"Do I think we have achieved it? No, because I don't think anybody could. I want the firm to be the clear market leader but with a higher reputation for doing the right thing."
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