PwC fears payments issue will go global

Australian Financial Review Mar 22, 2019 — 11.00pm

Edmund Tadros

EXCLUSIVE  Fears that PwC Australia’s burgeoning conflict-of-interest controversy over retirement payments made to former partners will spread to overseas member firms is piling pressure on local leadership to resolve the widening issue.

The firm on Friday denied that the global board had become involved, even as AFR Weekend identified another ex-partner who is receiving payments from the firm and working as an audit committee head at a listed company where the auditor is also PwC.

The PwC engagement with Amcor, along with the previously identified Vocus where a similar arrangement is in place, are estimated to be worth about $13 million in audit and non-audit fees to PwC.

Please stop talking

In one sign of the panic at the executive level of the firm, a note was sent out during the week to former partners reassuring them the matter was being dealt with while also urging them to stop talking to external parties about the payments.

AFR Weekend has also been told the professional giant's global leadership want the issue resolved over fears that scrutiny of its retirement benefits will spread overseas and that PwC's local executive held an emergency meeting to discuss how to resolve the ongoing revelations about the plan, which sees former senior equity partners given a lifetime payment by the firm that comes out of its annual net profit.

A spokeswoman for PwC denied as "incorrect and without any basis of fact" that any global pressure had been put upon the local firm and that an emergency meeting had been held over the retirement payments.

She added that the allegations over the global intervention and emergency meeting were little more than "unattributed content" and asked that the Financial Review "include our on-the-record responses refuting this content".

The Financial Review has also been told that negotiations are continuing over a plan to pay out the retirement benefits of a number of former partners identified as in roles with potential conflicts. But PwC's spokeswoman denied there was any plan to make changes to the retirement plan.

A range of governance groups and experts have said the firm and the companies involved should err on the side of more, not less, disclosure about the payments.

No comment on ex-partners

The PwC spokeswoman declined to comment on the individual ex-partner at the listed firms but said there was no conflict over retirement payments because there are no conditions attached to the payments.

"As part of our partner income structure, equity partners are entitled to receive payments once they retire from the firm as part of a retirement plan," she said.

"The details of this plan are put in place when an individual becomes an equity partner of the firm and the amount a retired partner receives is based on role and tenure with the firm.

"Retired equity partners have no requirement to perform or contribute to the firm post their retirement."

She said PwC also had "additional measures in place" for former partners in a situation where they may have to deal with PwC in their new role to ensure independence, but did not specify the steps taken.

'Measures in place': PwC

"We have always had additional measures in place for retired partners who join boards of companies we audit to ensure auditor independence rules are met," she said.

"In our experience, boards have stringent conflict management processes in place to manage potential conflicts of interest and assess the independence of their directors."

A former senior leader at the firm said that in potential conflict situations, the former partner would agree to a lowered ongoing payment – which can be worth more than $200,000 a year and even exceeding $500,000 a year – in exchange for the firm fixing the level of income.

This is as alternative to the standard arrangement of the payment being subject to cuts if the total value of the retirement payments exceed 15 per cent of the firm's net profit.

Either way, the discounted payments would still be sourced from the ongoing net profit of the firm, meaning the ex-partners would still be financially linked to PwC.

No conflict issues

Amcor, where former PwC senior partner Paul Brasher is head of the audit committee, declined to comment.

"Amcor are unable to provide comment on your questions," a spokesman said.

In 2018, Mr Brasher received US$221,807 ($312,140) as a director of Amcor. In the same financial year, PwC's received US$8.1 million ($11.5 million) in fees from Amcor for audit and non-audit work.

AFR Weekendhas previously reported that former senior PwC partner David Wiadrowski, also receives the firm's retirement payments while he is head of the audit committee of listed telco Vocus, a company audited by PwC.

A Vocus spokesman has denied there is any conflict between Mr Wiadrowski's role, for which he receives about $175,000 a year, and the PwC retirement payments.