PwC revenue slumps $820m after tax leaks scandal
Sep 24, 2024
Revenue at PwC Australia fell by more than a quarter, or $820 million, to $2.35 billion in the year to June, marking its worst slump on record due to the ongoing fallout of its tax leaks scandal and a subdued consulting market.
The firm, once the pre-eminent consulting outfit in the country, has now fallen to third place by revenue behind Deloitte Australia and EY Australia. It remains ahead of KPMG Australia.
PwC’s profit fell by 24 per cent in 2023-24, but average partner income only declined by 13 per cent due to top-up payments made to help them with unexpected tax liabilities. The firm also propped up its earnings through a concerted cost-cutting program, which involved hundreds of staff redundancies and dozens of partner cuts.
Average partner income at PwC is now about $765,000. This compares to average partner income of $814,000 at EY, $650,000 at KPMG and $510,000 at Deloitte.
The results show that chief executive Kevin Burrowes has done a remarkable job of ensuring the business is still generating revenue despite the turmoil that has engulfed it for almost two years. Mr Burrowes has made wide-scale changes at the firm designed to improve governance and strengthen risk controls.
“During a challenging year for the firm, we implemented ambitious and meaningful actions which are changing our firm for the better,” Mr Burrowes said in a statement.
“We introduced a new business strategy, leadership team and governance board – including the appointment of an independent chair – new risk systems, accountability measures and behavioural expectations. We’ve also made changes to our firm’s shape and size, better aligning our business to meet the changing needs of our clients and external environment.”
The firm has been reeling since May 2023 when the extent of the tax leaks scandal, first reported in January of that year, became apparent.
The scandal involved a former tax partner sharing with other partners confidential details about the federal government’s changes designed to combat multinational tax avoidance. Those partners then used that information to win new clients. Partners also developed structures that sidestepped the very same tax laws that PwC was helping the federal government to design.
The firm’s new independent chairman, John Green, said that he felt optimistic about the future of the firm.
“Confronting past failings has cast a long shadow for our people. Yet it’s also thrown a bright spotlight on our huge opportunity: to shape the PwC of the future,” he said in the firm’s report.
Partner and staff exits
PwC lost a net 250 partners and a net 3300 staff during the 2024 financial year, according its new Transparency Report which outlines its results. About 100 partners and 1000 staff are now part of new consulting firm Scyne Advisory, which was formed after PwC’s forced sale of its public sector arm to private equity investor Allegro Funds for just $1.
PwC also cut about 700 staff and almost 40 partners as part of a plan to reduce $100 million of ongoing costs at the firm. That means about 130 partners and thousands of staff left during 2023-24. The firm also brought on almost 700 graduates and about 1300 new staff. Overall staff turnover for the year was 32 per cent – roughly double the industry average of about 15 per cent.
The comparable revenue figures are based on income minus expenses charged to clients. Revenue in the firm’s financial advisory services division – which includes its tax advisory practice that was at the heart of the leaks scandal – was down only 2 per cent, to $985 million. Partners in the tax practice have found that winning new work has been difficult but that existing clients have, by and large, stuck with the firm.
The assurance business, which includes the all-important corporate auditing division, was down by 6 per cent, to $770 million. That practice, where the clients are more sensitive to reputation issues, has lost major clients including Westpac, but retained Macquarie Group.
Revenue from consulting, when the local division and part-owned regional consulting business are combined, more than halved to about $1.2 billion. This was mainly due to the Scyne spin-off and a lower demand from clients due to soft economic conditions.
These lines of service have since been restructured into three new divisions – advisory, assurance, and tax and legal – with new leaders.
The firm reported that 55 “serious misconduct complaints” were made, and 38 investigations completed during the year. Twenty-two complaints, or about 58 per cent, were substantiated. Two-thirds of these substantiated cases led to written warnings, while the remainder were exited from the business.
Challenges remain
Despite the reforms, PwC is still in the political crosshairs and has significant cultural issues to work through following the tax leaks scandal.
The firm has been continually criticised over the refusal of its parent body, PwC International, to hand over a report into the overseas aspects of the tax leaks scandal to parliament – and questions over the role that the overseas body after it put the Australian business under “supervised remediation”.
PwC has also come under fire for refusing to answer other parliamentary questions, although the firm maintains it has already answered hundreds of queries.
Mr Burrowes has also come under fire for failing to disclose for a year to his partners and his ethics chief that he was paid an extra $1.2 million by PwC International on top of his pay of $2.8 million from PwC Australia (before bonuses). He also failed to disclose the additional payment when asked about it in parliament in February and has denied the dual payments are a conflict of interest.
Cultural problems also remain, especially in the firm’s tax division. A follow-up report into the PwC tax and legal division found there had been significant improvements made to risk processes around how it provides tax advice and in its relationship with the Australian Taxation Office.
But there remained “a degree of scepticism” from ATO officials that PwC would be able to put its “values before growth and profit”. The report, completed in July, found tax officials were still waiting for the purported change in the firm’s attitude “to be demonstrated ‘on the ground’”.
[The Australian Financial Review]
