PwC’s UK partners took approximately 8% less distributable in profits this year despite record revenues, the Big Four firm’s latest UK results reveal. CCH Daily's Calum Fuller talks to senior partner Kevin Ellis
Profits for 2017 were £822m, down 1% on 2016, as the firm continued to invest heavily in staff, technology and service lines. The average distributable profit per partner before tax was £652,000, down 8% from £706,000 last year, with the overall number of equity partners increasing to 953, from 926 last year.
Revenues overall reached £3.6bn for the year ended 30 June 2017, up 5% from £3.44bn last year.
On the lower distributable profits for partners, PwC chairman and senior partner Kevin Ellis told CCH Daily the biggest factor was that growth was not as strong as previous years.
‘Part of it is more partners sharing in the profit as we’ve brought more partners through. Growth wasn’t as strong with the uncertainty created by Brexit – companies spend longer making their decisions over various transactions,’ he said. ‘The other big factor is that we’ve invested in technology, including a blockchain business in Belfast and an IT technology hub in Reading to make sure we’re relevant for tomorrow.’
The assurance, consulting and tax business divisions grew by 4%, 7%, and 7% respectively, with the deals practice down slightly (-1%) as strong transaction services based growth was offset by the winding down of some long-term insolvency and forensic assignments.
Assurance’s profit was hit as the Financial Reporting Council handed PwC more than £10m in fines for failures it made in the audits of Connaught and RSM Tenon.
In August 2017, the FRC issued PwC a £5.1m fine – its largest ever - and a severe reprimand for what the regulator termed ‘extensive’ misconduct in the audit of the financial statements of RSM Tenon Group, for the financial year ended 30 June 2011.
In the case of social housing provider Connaught, which went into administration in 2010, the FRC fined PwC £5m in May 2017 – again, at the time its biggest sanction ever – over findings of misconduct. It also severely reprimanded PwC and Stephen Harrison, a retired PwC audit partner, who was fined £150,000.
‘Obviously any impact on reputation from fines is a serious one,’ Ellis said. ‘We were very pleased with the recent regulatory reviews which gave us higher marks than we’d got before. Our job is to keep investing in quality and the audit practice. The only way you can have a strong and high quality audit practice is to ensure that people want to go into it. We’re seeing that work, but it is hard when you have quality issues like these.'
In light of those issues, Ellis said the firm is focusing on advancing technology to help reduce audit failures.
‘We have to look at it in the round. We do thousands of audits per year, and it’s a really important profession that’s underscoring confidence in the capital market,’ he said. ‘We’re doing a lot with artificial intelligence (AI) in the audit practice. I don’t think an audit will ever be totally automated, so it’s one of the areas where it will be man and machine working in tandem.
'AI will augment or enhance audit, but it won’t replace humans and like anything, there will always be the potential for human error.’
Report by Calum Fuller