Transparency Report Building trust through our audits Year ended 30 June 2019 Building trust through our audits Assurance* at a glance Here are some of the highlights of our year to 30 June 2019, and some of the key data points within this report: Our pursuit of quality Partner and staff survey Audit quality reviews – internal The leaders I work with Results of the firm’s own audit quality reviews – percentage Number of audit engagements encourage me to deliver of audits rated compliant, compliant with review matters, reviewed and the annualised high quality services and non-compliant: percentage of Responsible 4% 14% Individuals subject to the firm’s 7% own audit quality reviews 2% audit FY19 142 engagments 2019 2018 were reviewed in 89% FY19 covering 41% of the firm’s FY18: 89% 84% 89% Responsible Individuals Compliant Compliant with Review Matters Non-Compliant FY18: 136, 39% PwC AQR Inspection Gradings 2014/15 – 2018/19 All reviews 100% 25 23 21 80% 20 16 60% 40% 5 20% 4 4 4 2 2 2 0% 2018/19 2017/18 2016/17 2015/16 2014/15 Good or limited improvements required Improvements required Signicant improvements required Revenue Investing in our people Assurance UK revenues Investment in training and development New partner admissions £1,201m 1.4 million 1 in 2 FY18: £1,132m hours of training and personal development of new partner admittances in the Audit by Assurance people in the 2018 calendar year line of service in FY19 were women 2017 calendar year: 1.4m FY19: 2 in 5 for the combined Audit and Risk Assurance lines of service (together previously the Assurance line of service) FY18: 1 in 5 for the Assurance line of service; FY17: 1 in 5 for the Assurance line of service For more on the Audit Quality Indicators, including training, see section 16 of this report, and for human resources see section 9. * The Assurance line of service included the Audit and Risk Assurance practices for the year ended 30 June 2019. With effect from 1 July 2019, the Audit and Risk Assurance practice became separate lines of service. Contents Welcome to our 2019 Transparency Report .................................................................................. 1 Update from the Chair of the Public Interest Body ...................................................................... 3 Update from the UK Head of Audit ................................................................................................. 7 1 Governance ................................................................................................................................11 2 A guide to the remaining sections of the 2019 Transparency Report ............................... 23 3 Our Programme to Enhance Audit Quality ............................................................................ 25 4 The PricewaterhouseCoopers Network ............................................................................... 27 5 Internal control and internal quality control systems ......................................................... 33 6 Leadership responsibilities for quality within the firm ........................................................ 35 7 Relevant ethical requirements ................................................................................................ 37 8 Acceptance and continuance of client relationships and specific engagements ...........41 9 Human Resources .................................................................................................................... 43 10 Engagement performance .......................................................................................................47 11 Internal Monitoring ................................................................................................................... 59 12 Review of the firm's internal control system ........................................................................ 65 13 Statement on the effectiveness of the firm's internal quality control systems ............... 69 14 Independence policies and practices .....................................................................................71 15 External Monitoring .................................................................................................................. 75 16 Audit Quality Information .........................................................................................................81 17 EU Public Interest Entities and Major Local Audits ............................................................. 87 18 Compliance with the Local Auditors (Transparency Instrument 2015) ............................. 89 19 Financial Information ............................................................................................................... 91 20 Renumeration of Partners and Independent Non-Executives ........................................... 93 Appendices 1 Legal structure and Ownership .............................................................................................. 95 2 Membership of the firm's governance bodies - biographies, meeting attendances and other matters .................................................................................................................... 99 3 Committees of the Management Board and the Supervisory Board .............................. 107 4 Additional information regarding our internal monitoring processes ............................ 109 5 Learning and development of our people ............................................................................111 6 List of EU and EEA member state auditors that are members of the PwC network as at 30 June 2019 ...............................................................................113 7 List of Public Interest Entities ................................................................................................115 8 List of Major Local Audits ...................................................................................................... 125 9 Glossary ................................................................................................................................... 127 10 Audit Firm Governance Code ................................................................................................ 129 Welcome to our 2019 Transparency Report This report includes information about how the firm is governed and includes updates from Lord Gus O’Donnell, Chair of our Public Interest Body, as well as from Hemione Hudson, who leads our audit practice. While PwC is a multidisciplinary firm, this report is primarily focused on our audit practice and related services. The audit profession continues to be under significant public scrutiny and challenge. We understand the concerns and recognise that the audit profession has not kept pace with the expectations of society and needs to evolve and reform. We support changes that will improve audit quality. Over the last year, we also opened up a public discussion on the future of audit and have been listening to a wide range of stakeholders, exploring Kevin Ellis how it needs to change to meet society’s evolving expectations. We know there are no easy answers and that no single participant can resolve the challenges but we are committed to changes that ensure The purpose of this report is to help audits remain relevant and valuable. our key stakeholders and wider society understand our governance There continues to be regulatory and framework in the interests of political interest in our sector and we remain committed to working with policy makers providing transparency. on all the areas under review, to develop a system in which we can all be confident. 1 Transparency Report FY19 Our purpose is to build trust in society and In June 2019 we announced a programme solve important problems. We seek to bring to enhance audit quality, which included our purpose to life in everything we do. committing an additional £30 million a There can be no trust without confidence year for training, people and technology and building and maintaining confidence initiatives. We were very disappointed that in audit is vitally important. Ensuring that we received a sanction from our regulator, the audit is fit for the future matters. It is the Financial Reporting Council (FRC), important, not only to us as a leading firm in in respect of our historical audit work on the sector, but also to the many stakeholders Redcentric PLC. We also acknowledge who rely on the assurance that the audit that our latest Audit Quality Review results profession is here to provide. (the annual assessment of audit quality undertaken by the FRC) are not acceptable. Our people are key to performing high The FRC identified areas that require quality audits and we draw upon a wide further improvement and we are range of specialist skills across our multi- addressing them to ensure that we disciplinary practice. Our people are also consistently deliver high quality audits. critical to embedding good governance and culture throughout the firm. Taken together, these measures represent a significant transformation of our audit We take our public interest responsibilities business and support our clear-sighted seriously and audit quality is the primary focus on audit quality and our public objective within our audit practice. interest responsibilities. We have taken steps to align our business to Kevin Ellis support this focus on audit quality, creating two distinct businesses – Audit and Risk September 2019 Assurance. We have also introduced a series of