Why global businesses need global audit networks October 2012 www.pwc.com
www.pwc.com Why global businesses need global audit networks October 2012 Why global businesses need global audit networks Introduction Leading audit networks have grown in response to the needs of the market. As companies have become more global, they have required their auditors to provide consistent quality service across the world. To conduct quality audits, firms need expertise in many areas such as tax, valuation, risks and systems – as well as the ability to keep pace with constantly changing regulations, standards and industries. Large multi-disciplinary networks are essential for providing global businesses with high-quality audits. This document illustrates why. PwC 2 Why global businesses need global audit networks Multinational corporations are growing in scale and complexity… resulting in millions of transactions every day Complex in their own unique ways – Complex ownership structure and family tree – Complex regional/subregional/ functional structure – Complex extra and intra-business transactions – Complex supply chains A Global Group A Global Group In more places than ever London listing New York listing – More countries – More markets – More cultures – More currencies – More languages – More legislative and regulatory regimes Dubai listing CEE North America Europe Bigger than ever – Valued in $billions – Earning $billions – Employing 100,000+ people – Based in 100+ locations – Producing 100+ product and/or service brands – Used by billions of customers every day – Contributing to 100s of local economies – Spending $billions on goods and services every year PwC South America Africa Asia Transacting in more ways than ever – Out-sourced – Co-sourced – Multi-media – Multi-channel More diverse than ever – Sophisticated R&D. Marketing and HR operations – Dynamic M&A environments – Multi-faceted financing activities – Vast IT systems 3 Why global businesses need global audit networks The structure of a group evolves over time… and can become extremely complex Global aggregation and consolidation Global Finance Millions of transactions take place continuously across group businesses, time zones, reporting timescales, national and regional boundaries, legal and regulatory regimes… by operations, by product NY Finance types, by market, etc. TopCo FinCo TopCo HoldCo TopCo TopCo FinCo SPV FinCo TopCo TopCo SubTopCo SubTopCo SPV SPV SPV OpCo OpCo SPV OpCo OpCo FinCo TopCo TopCo SubTopCo Board and Senior Management Multiple reporting requirements Management SubTopCo SPV OpCo SPV SubTopCo OpCo SPV SubTopCo SubTopCo SubTopCo SubTopCo SubTopCo SPV SPV SPV FinCo FinCo FinCo SPV FinCo FinCo SPV SPV SPV OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo SPV SPV SPV OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo Europe Finance Americas Region HoldCo HoldCo HoldCo SubTopCo OpCo OpCo OpCo OpCo OpCo SubTopCo SubTopCo FinCo FinCo FinCo FinCo FinCo FinCo FinCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo SubTopCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo CEE Region FinCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo OpCo Africa Region FinCo FinCo FinCo FinCo FinCo FinCo FinCo Resourcing demands SPV OpCo Africa Finance FinCo Asia Finance FinCo FinCo HoldCo FinCo HoldCo FinCo Constantly changing and evolving in different ways in different countries around the world… resulting in tens of thousands of pages of financial information SPV Asia Region FinCo Growth and diversification, through mergers and acquisitions, happens all the time to stay competitive in a complicated world TopCo HoldCo SubTopCo FinCo Continuous evolution and change SubTopCo HoldCo FinCo FinCo TopCo TopCo OpCo Management FinCo FinCo TopCo SubTopCo SubTopCo SubTopCo FinCo Ultimate TopCo FinCo HoldCo HoldCo HoldCo HoldCo OpCo OpCo OpCo OpCo SPV SPV SPV SPV Continuous pressure on accounting function to keep pace with change, to expand its expertise base, to understand evolving markets and regulatory regimes, to achieve strength in depth and consistency in hundreds of locations around the world HoldCo This example is illustrative, based on real examples, and may differ from company to company, and jurisdiction to jurisdiction. PwC 4 Why global businesses need global audit networks Auditors of today’s global businesses face difficult questions… and are required to communicate frequently with many diverse stakeholders Understanding Views on significant risk presented to Audit Committee N Update planning for year end Q3 review procedures A Half year review g Significant issues report presented to Audit Committee PwC Jul Q1 review procedures Issue instructions to global team y Interim controls sign off Risk assessment Scoping and materiality How to make sense of uniquely complex and continuously evolving global organisations in the context of a complicated and continuously changing world? Planning a Sep Continuous communication, site visits and Update planning evidence for results of gathering controls testing u Issue Q2 results Post year Fe end audit procedures Planning procedures and scope discussions Views on controls presented to Audit Committee M ar O ct ov Jan b Issue Q3 results Dec Audited financial statements issued Apr Report on systems and controls effectiveness presented to finance team Audit Committee progress reporting Announce ‘unaudited’ results M Auditor effectiveness reviews, presentation of preliminary annual plan AGM includes reappointment of auditors Jun Aud s it tea put m milestones and out Co n mp tio any ma r o pub f l in lic an nouncements of financia Issue Q1 results – Where to start? – Where to concentrate finite resources? – Where to go to cover sufficient ground to ensure conclusions are ‘universally’ valid? – Which specialists to deploy, where, when and with which other experts? Assessing – Are client control systems robust and can they deliver enough information? – Do we have enough evidence? – Have we considered the interests of all stakeholders – investors, regulators, the public, the economy, our people, etc? 5 Why global businesses need global audit networks Requiring the coordination of expertise from a range of specialists and audit teams across the world Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Month 13 Month 14 Month 15 Planning Timing How do you schedule year-specific projects in a real world that runs to real time pressures? Reporting Resourcing Staffing an engagement brings about a wide range of questions, including for example: – Do we have enough auditors in China? – Do we have a specialist treasury team in Lisbon? – Can we get an IT system specialist to Rio by Tuesday? – Who’s our compliance guy in Sydney? – Who runs our valuation team in Delhi? Compliance Coordination: Overseas Activities Coordination: Subsidiaries Audits of subsidiaries Controls / Testing One audit team Audit of tax and tax services Transaction related assurance Year-end 750+ people 150+ partners 100+ locations This example from a global banking group, is illustrative, and may differ from company to company, and jurisdiction to jurisdiction. PwC 6 Why global businesses need global audit networks All done within rigorous global and local quality and independence requirements I ofndep au en dit d teaent m Ensuring quality Quality control review Partner quality review Group engagement partner review – With client oversight by those charged with governance (typically the audit committee or equivalent) – May also include external audit quality review by regulators Delivering quality with support – Policies, procedures, standards and methodology – Auditing and accounting experts Group audit team review – Reporting experts m – Independence experts – Regulatory experts tt ea Local partner review Th ea Team manager review Audit execution (PwC worldwide methodology) fc lie nt ud it e ng ag em en – Industry experts Selecting clients People development Risk management Review and consultation Cultural underpinning In de p en de n to Client acceptance and retention procedures PwC 7 Why global businesses need global audit networks And all of this is just for one year… the audit team must keep up to date with industry and company changes Strategic change Restructurings Management change Refinancing Reorganisations Economic change Capital raising Acquisitions Disposals Legal/Regulatory change New products PwC 8 Why global businesses need global audit networks Global businesses need global auditors The fact is: only audit networks with global resources that mirror today’s global businesses can really provide credible assurance on their financial information around the world... PwC 9 Why global businesses need global audit networks To audit today’s global businesses auditors require global presence Global credibility A track record that reassures global businesses and those who scrutinise them Global reach Where clients need them, when they need them Western Europe 60,900 people Central and Eastern Europe 7,900 people North America and the Caribbean Asia 37,800 people 44,900 people Middle East and Africa 11,000 Global resources people Systems capable of handling global projects and catching the standards of global businesses South and Central America 12,200 people Global expertise The right people with the right range of skills in the right places at the right time PwC The PwC Network 158 countries 776 locations 180,600 PwC people Global confidence Sufficient certainty in themselves to place their reputation on the line – to sign off financial statements as ‘properly prepared’, to take an informed view on their ‘truth and fairness’ Australasia and Pacific Islands 5,900 people © 2012 PwC. 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