PwC and the Big 4 have been in full defence mode before the Senate’s inquiry into consultants, and for good reason. They are protecting the global tax avoidance trade which earns them billions. Adam Lucas and James Guthrie report.
The scandalous behaviour and lack of accountability of the Big Four accountancy firms – Deloitte, KPMG, PwC and EY – remains a regular feature of the news cycle as the Senate Inquiry into consultants draws to a close. While government consulting has been the fast-growth business for the Big 4, their bread and butter remains the other two divisions: audit and tax (avoidance) advice.
So it is that, despite the demands of the Senate for release of the Linklaters report into the PwC scandal in Australia – PwC Global had commissioned the report – the firm has refused to provide it.
As David Cay Johnston, US journalist and tax expert told his subscribers this week, “PwC is doing everything possible to make sure that big US and UK names – of partners and client companies – won’t hit the headlines outside of Australia.
An email cache uncovered by AFR showed that PwC had quickly put together an international swat team, “Project North America”, to market the intel to multinationals interested in avoiding new Australian taxes … PwC Australia had charged $2.5 million in fees in 2016 to advise 14 clients how to sidestep new multinational tax avoidance laws based on the intelligence shared by tax partner [Peter] Collins”.
Time for reform
Together with several critical accounting colleagues from Macquarie University and the Open University (UK) [Editor: and two other universities whose professors have claimed they did not want to be identified due to mental health concerns], we have been making a series of parliamentary submissions, as well as writing popular and journal articles documenting these issues and recommending to the government a series of substantive reforms to the way auditing, accounting and consultancies are performed and operate in Australia.
MWM has been instrumental in drawing attention to the many questionable, unethical and even illegal practices in which the Big Four have allegedly been involved over many years. With this in mind, we have been invited by MWM to draw readers’ attention to some of this work in the hope that it might provide some more impetus for reform.
Ziggy plays for time: PwC’s dual ‘independent reports’ a dual whitewash
The audit oligopoly
A major reason for shining a light on the activities of the Big Four is that they audit 98 per cent of global corporations with a turnover of US$1 billion or more. They audit all the FTSE 100 Index firms in the UK, and ALL THE Fortune 500 companies in the US.
They also audit 97 per cent of Australia’s ASX 300 companies. Many of these companies are known to be involved in profit shifting, transfer pricing and the use of complex corporate structures involving tax havens. In July 2023, the Tax Justice Network reported that
US$480 billion a year is lost to global tax abuse.
Of that sum, US$311 billion is the result of cross-border corporate tax abuse by transnational corporations, while US$169 billion is the result of offshore tax abuse by wealthy individuals.
Although the Big Four have repeatedly been accused of engaging in conflicts of interest while assuring the public and regulators that there is ‘nothing to see here’, the empirical evidence suggests that there is, to the contrary, plenty to see here.
World’s biggest scam – billionaires, multinationals tax dodging – can’t be fixed by talkfests
Audit quality and consultancy capture
Despite their dominance of global audit processes, the Big Four have repeatedly failed to identify fraudulent accounting practices in significant firms that have subsequently collapsed, including WorldCom, Thomas Cook, Lehmann Brothers, Carillion, BHS, IMDB and WireCard, to name just a few.
The evidence we have compiled in the parliamentary submissions and popular and journal articles we have hyperlinked below demonstrates how global consultancy firms – and most prominently, the Big Four, have captured regulatory agencies, government service providers, senior bureaucrats and members of ruling political parties.
This has enabled them to shape the legal, regulatory, and policy processes to favour themselves and their corporate clients to the detriment of the public interest in every nation in which they operate.
We wholeheartedly support calls by Michael West, Jeff Knapp and other contributors to MWM that appropriate regulation of audit, tax advisory and consultancy firms is essential to shift the balance from profit-making to protecting the public interest.
Our analysis supports previous calls by tax experts and industry insiders to break up these firms and force a structural separation between their strategic advisory, taxation and auditing functions. We have also argued there are substantial grounds for abolishing the opaque structures of limited liability partnerships (LLPs), which effectively enable these partnerships to internalise the extent of their accountability for wrongdoing.
Multinational tax integrity and tax avoidance by the fossil fuel industry: Part 2
Dr Adam Lucas is a senior lecturer in the School of Humanities and Social Inquiry at the University of Wollongong. His research interests include climate change and energy policy, the corporatization of public institutions, and global tax avoidance. He is also currently co-investigator on a historical research project with colleagues at the University of Glasgow into the first energy transition from waterpower to steam and coal in the British textile industry. Prior to taking up his current position at UoW, he worked as a researcher and policy analyst for the New South Wales Government in The Cabinet Office, State and Regional Development, Aboriginal Affairs and Housing. As a founding member of Public Universities Australia and Academics for Public Universities, he has also published extensively on the reform of Australia's higher education system.
Emeritus Prof. James Guthrie, AM, FCPA, is an Emeritus Professor of Accounting at Macquarie Business School in Sydney, Australia. His research interests have focused on social and environmental accounting, accountability, public sector accounting, academic research performance measurement, and public universities' commercialisation.