Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
EY, Deloitte execs deny conflicts as calls build to break up Big Four
Executives from Deloitte and EY defended the uniquely powerful position of consultancy firms – and the size of their own salaries – against pointed questioning from a Senate inquiry Monday and Tuesday, while senators endorsed calls for the break-up of the Big Four accounting firms.
With the recent PwC scandal over government tax leaks looming large over the hearing, Deloitte Australia CEO Adam Powick agreed there is an opportunity to review the regulatory oversight of consulting firms and their provision of audit services and acknowledged there are currently gaps.
Nonetheless, chairman Tom Imbesi told the Senate Finance and Public Administration References Committee’s inquiry into the management and assurance of integrity by consulting services that the firms’ structures were not problematic, despite arguments from committee members and other witnesses that inherent conflicts of interest necessitate the breakup of their businesses.
“We believe our global multidisciplinary model enables us to deliver high quality services to meet the rapidly expanding needs of our clients, including the public sector, and it is for this reason that we have no intention of ring-fencing any apart of our business,” Imbesi said.
The inquiry into the Big Four – Deloitte, EY, KPMG and PwC – was sparked by reports about PwC’s use of confidential government information to help clients. While PwC did not appear at the hearing, it submitted its partnership deed and a breakdown of partner pay – which committee members, led by Senators Deborah O’Neill and Barbara Pocock, castigated the other firms for failing to do.
‘Need to act now’
Law and economics professor Alan Fels (pictured), a former chair of the Australian Competition and Consumer Commission, told the inquiry that the importance of the auditing work that the Big Four – Deloitte, EY, KPMG and PwC – perform for the private and particularly the public sectors means those services should be separated from the consulting and advisory services the firms also provide.
“Audit is critical to the economy and should not be compromised unnecessarily,” Fels said, adding that self-regulation and government regulation alone are not enough.
“We therefore need regulation to break up the Big Four, and in time other audit businesses, and to prohibit audit businesses from doing consulting, advisory and other forms of business.”
But, according to Imbesi, breaking up their businesses is not something the consultancies will support.
“Deloitte made the deliberate choice many years ago to provide project-based services to governments, and not to provide labour-hire services; in other words, we do not body shop,” he said. “These services are not aligned to how we work with governments, and we believe that this approach does not best serve the public interest.”
David Larocca, CEO of EY, sought to distance EY from the conduct at PwC, saying “the practices that triggered the establishment of this inquiry are not the way we do business at EY.
“The actions of a group of partners and leaders at one firm have impacted the reputation of tens of thousands of professionals across Australia who do the right thing every day, abiding by and continuously setting the high standard that Australia can and should expect from us.”
Committee members, however, pointed to Fels’ argument that perhaps breaking up the firms’ auditing arms from their non-audit services is not the radical solution it was once considered.
“The balance of costs and benefits and advantages and disadvantages has clearly changed following the PwC scandal, and it is now clear that self-regulation and government oversight don’t work,” Fels said. And O’Neill and Pocock pointed to PwC’s recent rapid divestment of its government operations as belying the firms’ arguments that their businesses are too intertwined to separate.
“What we’re talking about is the refereeing of audit, and it inherently requires close regulation and the maximum avoidance of conflicts,” Fels said. “I believe there is a need to act now on the breakup.”
And, according to O’Neill, the revelations about PwC have made it clear that increased disclosure and oversight are essential for the public to understand the role and power of consultancy firms. “The veil has parted, and we’ve actually seen hat’s been denied for a very long period of time by the sector.”
