Exclusive: PwC links to independent anti-reform lobbyist revealed

Connection exposed as competition regulators prepare to shake up the audit market

James Moore
Friday 19 July 2013 01:19

PricewaterhouseCoopers is quietly administering a key lobbying organisation trying to block reforms of the accountancy profession, it is revealed today.

Britain’s biggest accounting firm has been servicing what purports to be an “independent” critic of key parts of plans to impose tighter regulations on the way big companies are audited – a move furiously opposed by big accountants.

The Corporate Reporting Users Forum (Cruf) is billed as an independent “forum to help professional investors and analysts”. Cruf is fiercely critical of proposals from the Competition Commission to force companies regularly to switch auditors to stop them getting too cosy with the companies they are monitoring.

It told the commission that changing auditor more than every 10 years would not “benefit shareholders … in audit quality and the reliability of audited reporting”. Even forcing changing every decade would “impose increased costs” that “could be significant both for companies and auditors” due to “time spent on the process, tendering costs, and distraction of managerial focus”.

But there is no mention on Cruf’s website, or in any of its documentation, that it is administered by staff from Britain’s biggest accountancy firm, PricewaterhouseCoopers. Its website is hosted by PwC, its meetings are held at PwC’s offices and PwC sent emails around the City urging people to put their names to its submission to the commission’s inquiry into the big four accountancy firms, which is expect to report early next week.

PwC’s own view states: “We believe that mandatory audit firm rotation is likely to reduce – not improve – the quality of audits and the reliability of financial reporting.”

In February, the commission attacked the big audit firms, which also include Ernst & Young, Deloitte and KPMG, saying the audit market they dominate was failing. The performance of auditors of failed banks such as Royal Bank of Scotland and HBOS has also come under sustained fire.

The commission said that 31 per cent of FTSE 100 companies and 20 per cent of FTSE 250 companies have had the same auditor for more than 20 years.

When The Independent sought to contact the “Cruf team” using the number on its website, the call was picked up by a PwC employee who said the number belonged to “a PwC associate”. The Independent has also seen the PwC email sent to Cruf members urging them to sign Cruf’s submission.

The email, sent on 17 April shortly before the commission’s deadline, says: “The Cruf will be submitting their response to the Competition Commission tomorrow morning so there is still a chance to sign. If you would like to sign then please let me know by 5pm today.” It was sent by a PwC employee described as “a manager”.

Pirc, the investor group which advises some of Britain’s biggest pension funds on voting, has sharply criticised Cruf and its links to PwC. It said: “Henceforth, we suggest that Cruf ought be renamed ‘Crufts’ after the dog show with a new line in obedience training for poodles.”

And a Pirc spokesman said: “You have to be impressed at the sheer effort going into trying to stop the Competition Commission enacting reforms like mandatory rotation. We’ve now found both duplicate responses to the Commission’s provisional findings and a co-ordinated ‘investor’ letter. ”

But Crispin Southgate, one of Cruf’s leading lights and a director of Institutional Investment Advisors, yesterday insisted that the organisation was not influenced by PwC, despite the wide range of services provided to it by PwC.

He said: “We are completely independent of PwC. PwC provides hosting, coffee and biscuits in the meeting room and suchlike. At those meetings we will either be discussing issues from ourselves or we will have the accounting bodies present or the regulators. PwC are providing a forum. It is just a venue and we are quite independent.”

Mr Southgate stressed that members signed up to Cruf submissions in a personal capacity. He said the PwC manager who solicited the responses from Cruf members was in effect acting as a secretary.

PwC is one of the City’s top accountancy firms, providing audit services to nearly half the FTSE 100. It generates fees in the UK of £2.6bn annually.

Government sources say they are “well aware” of the way such firms maintain connections and influence throughout the City and government.

A spokesman for PwC said: “The Corporate Reporting Users’ Forum (Cruf) is an independent panel made up of members of the investment community. PwC provides some administrative support, but is not a member of Cruf and does not shape or influence its views. Cruf’s submission to the Competition Commission was prepared by Peter Elwin, head of European pensions, valuation and accounting research at JP Morgan, and Crispin Southgate of Independent Investment Advsiors Ltd.”

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