2014 Review Malta Firm - PwC · 6 PwC 2014 Review Malta Firm 7 Serving our clients 03 Assurance Assurance remains a brand defining activity for PwC, one that most delineates its wider

2014 Review Malta Firm 1

2 PwC 2014 Review Malta Firm 1

2014 Review Malta Firm

PwC refers to the Malta member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.

Introduction 2

6

Serving our clients

16

Committed totransparency

26

Creating value for our people

Some Highlights

4


trust in society and solve important problems. This review describes the work we do today, and how this guides our decision-making for tomorrow. To deliver on this purpose, our business needs to continually innovate and invest, and also to make choices aligned with our values, which see the firm taking a medium and long-term view on all major issues.

Our firm is an integral part of Malta’s highly successful professional and business support services sector, which contributes significantly to gross domestic product, and has grown materially over recent years. In 2014 for example, we will have paid and collected over €9 million of tax representing income and employment taxes and VAT.

The market for talent continues to change, both in terms of the skills of the people we hire and where they come from. We continue to be a popular place to start, build and continue a career. In 2014, we received over 1,000 applications for jobs, reflecting the strength of our brand and attractiveness of our firm, and recruited 111 full-time employees and 82 trainees. To complement our intake from students leaving university, we have ramped up our ACA and ACCA in-house training courses, and we have made our firm

I am delighted to welcome you to our 2014 annual review and transparency report. As always, our aim is to provide a broad understanding of our firm, the services we provide, and the way that we do things. This publication also incorporates our transparency report for 2014 as required by the EU Statutory Audit Directive.

PwC has performed well over the last year. Our revenues grew by 10% to €26.2 million, a strong performance that reflects demand for our services across a broad client range. We have pursued our vision of doing the right thing for our clients, our people and our communities. We have continued to transform and invest in our business through innovation and new services, and most importantly, through the retention, development and recruitment of a record number of talented people. We are very well positioned to work with our clients as they focus on growth.

We play an important role in the Maltese economy in many ways, and during the year we have focused particularly on supporting local business at different levels. Responsible growth requires us to be clear about how we do business, our strategy to serve clients, and how we respond to an increasingly dynamic market. Our purpose is clear – to build

Kevin ValenziaTerritory Senior Partner

audits. Quality has been the key driving force behind our practice and we are delighted, but not complacent, with our record on audit quality, based on external regulatory review.

The European Commission has now enacted legislation that will alter the audit and advisory market for listed companies within the European Union. As Member States implement the legislation over coming years, we hope that individual regulators are coordinated to ensure that the outcome is easy to understand for our clients and does not unnecessarily increase costs for business. These changes will have a direct impact on our business and on our share of the audit market; however, our balanced business model is resilient and we are confident that our strategy will see the continued growth of our firm over the coming years.

I think the marketplace will remain challenging in 2015 and we need to stay focused on what we are doing for our clients to help them deal with their issues. We must also continue to innovate, and make sure we have the right products, services and skills to help our clients be really successful. In addition, of course, we need to keep enhancing the quality of our work. We are looking at a number of

more accessible by attracting and retaining the best talent, open to all, regardless of their background. At the end of the year, we had around 500 people on our payroll, including trainees, and expect this number to continue to grow over the coming year.

Our workforce must also reflect our communities, and therefore increasing diversity has been a key priority. Over 60% of our people are women, and the number of women in senior leadership positions within the firm is continually increasing. Despite this progress, we have much ground still to cover. We also recognise that there are more aspects to diversity than gender, and we need to do more to attract and support a more culturally diverse workforce.

We also recognise that a one-size-fits-all career model doesn’t work. We aim to provide flexibility, so people can build rewarding careers within the constraints they face and, as the challenges our clients pose become ever more complex, we need people with diverse skills and diverse backgrounds to help solve them. All those diverse individuals should feel they can really contribute as part of the team.

Like many industries, we are subject to increasing regulatory scrutiny, particularly covering our statutory

new areas that we think can make a further difference, such as data analytics, digitisation of our services, cyber security, and in particular new assurance-type services.

As always, my sincere thanks goes to our clients and to our people, and all who have contributed to make PwC in Malta what it is today. In particular this year, I want to place on record my appreciation for the significant contribution that John Zarb has made to the firm over the years. John retired from the partnership at the end of 2014, upon reaching the firm’s mandatory partner retirement age, but remains with us in a consultancy capacity. John has been one of the foundations of this firm, and is recognised in the market place and amongst his peers for his intellect, honesty, and many other attributes. I have been really fortunate to have had John as my partner for so many years, and his insight and wisdom have been really valuable to us all.

Kevin ValenziaTerritory Senior Partner

March 2015

Introduction

We aim to provide flexibility, so people can build rewarding careers within the constraints they face


tax contributed in terms of income and

employment taxes and VAT

Corporate Responsibility

2,100hours dedicated to community and professional activities apart from the PwC €1 million Start up Fund

€244,000in terms of cash contributions and hours dedicated to professional and philanthropic activities

Some HighlightsPwC €1 million Start up Fund

Our People

Increased collaboration with other key local institutions

72 Applications

44 Live projects

Complemented by:

Established businesses now coming forward to finance and capital

Government incentives and new initiatives

Our RevenuesTotal fee income €26.2 million

Statutory audit €11.1 million

Tax€8.6 million

Advisory€6.5 million

10%

1%

10%

28%

€ 9 million

530Staff head count at year end December 2014

336Professionals

139Students

55Support Staff


Serving our clients

03

Assurance

Assurance remains a brand defining activity for PwC, one that most delineates its wider societal obligations. It is also the largest activity carried out by the firm, with statutory auditing, including our staff participating in statutory audits overseas, accounting for 42% of the firm’s income in 2014.

The assurance practice within PwC globally remains focused on helping finance and industry re-establish the public trust endangered in the aftermath of the 2008 financial crisis. Although Malta has not been engulfed by the banking and other failures encountered elsewhere, the issue of trust is a global one with repercussions in all territories.

Regulators, understandably, are focused on this issue, and we have witnessed a raft of added regulation impacting the financial services sector in recent years.

2014 has also seen the enactment of material reforms within the EU audit market that will come into force in coming years. These reforms are being adopted by some global companies ahead of their due date, and the

profession has seen changes in certain major audit mandates as a result. The firm in Malta has to date benefited from these changes, winning clients such as HSBC and Vodafone, which will impact our practice in the main in 2015.2014 was largely a stable and successful one for the Maltese economy, and for our clients in general. Our Assurance practice performed well in this environment, registering a growth in statutory audit income of 9% , excluding overseas secondments.

This encouraging growth in what is a highly competitive audit market has been driven by important client wins that impacted our results in 2014. These included local entities such as the Central Bank, MFSA, Malta Resources Authority and Allcare Insurance, amongst a number of others. Growth was also registered in our international audit client base, with clients operating overseas accounting for 45% of the firm’s aggregate income in 2014.This percentage would have been higher were it not for staff resource limitations

Source of total billings

55%Clients based in Malta

45%Clients operating overseas


that resulted in the firm not being able to benefit from the full extent of demand for overseas secondments, especially in the early months of the year. The extent of PwC Malta staff participating in statutory audits overseas amounted to 269 man weeks, representing a material decrease from the levels recorded in recent years, particularly in 2011/12. Such assignments have a value going well beyond their direct economic gain, in that they expose our staff to a range of experiences that widen their professional horizons; although priority is always given, in deploying our resources, to meeting our local commitments. In the course of 2014 we nevertheless had staff participating in statutory audit in a number of cities such as Chicago, San Jose, Houston, Phoenix, Philadelphia, New York, Lugano, Geneva, London and Milan, among others.

With demand for work both locally and overseas remaining strong, material inroads were made in the course of the year to address our staff limitations in

the Assurance practice. Over 50 new staff, including a sizeable number of experienced professionals, were hired in the last six months of 2014, accompanied by a dedicated induction training programme.

These encouraging trends have been managed by the firm with a focus firmly set on maintaining quality and independence.

At the end of 2014, our Assurance practice numbered 192 partners and professional staff, apart from trainees. Enforcing a high standard of quality control over statutory audit work remains a priority, one that is dealt with extensively in a subsequent section of this annual report.

An important role is played, in ensuring high quality work, by the IT based tools used in the conduct of statutory audits. These tools, which are developed and continually enhanced by the PwC global network, are designed to ensure that our work is fully compliant with all relevant auditing standards; to bring to bear on

each audit the know how of the firm as a whole, placing a wealth of relevant material at the disposal of our staff; and to facilitate the execution, review and control of an audit. All assurance staff are extensively trained on the global firm’s statutory audit methodology, in the process enhancing their eligibility for overseas deployments.

Looking ahead, we expect the role of IT driven audit tools to continue to increase in the years ahead. As clients add to the extent and sophistication of the data held on their systems, added opportunities will be given to the auditor to employ data mining techniques to facilitate audit testing. It will increasingly be possible, on certain substantive work, to replace audit sampling with automated tests covering 100% of a client’s data. The PwC global network will remain at the forefront in the development of tools and techniques that will permit its professionals to avail themselves of these opportunities.

Tax

With a total of 104 partners and staff, our tax services registered a growth in income of 10% in 2014, accounting for one third of the billings of the firm. Our Tax unit assists clients both in routine tax compliance work and in tax planning, advising clients on a range of topics. As tax advisers, our role is to help our clients navigate through the complexity of the applicable rules and make informed decisions with respect to the tax risks they face.

The unit also provides company administration services, ranging from the maintenance of company secretarial records to the maintenance of accounting records.

Our tax professionals moreover play an important supporting role in the audit of tax provisions and related data reflected in statutory financial statements.

The tax practice deals with a wide variety of local and international businesses, often in conjunction with tax practitioners in other PwC member firms overseas. It is obviously impacted by international developments in this

field. Across the world, public interest in the tax affairs of international corporations has never been greater than it is today. And this unprecedented scrutiny is mirrored by an ongoing – and often heated – debate among the media, politicians and non-governmental organisations (NGOs).

At the same time, governments are seeking – quite rightly – to ensure their tax systems generate the revenues they expect. But equally they want to remain competitive internationally. In combination, these developments have fuelled a widespread perception in some countries that large corporations are not paying their ‘fair share’ of tax, in turn contributing to a loss of trust in tax systems themselves.

Public trust in the administration of tax systems has moreover been impacted by other events, such as the revelations on overseas bank accounts that have made the headlines in recent weeks.

Some countries, such as Malta, also face opposite pressures, and find themselves constrained in their ability to offer fiscal

and related benefits which in past years have played a pivotal role in attracting manufacturing industry and other foreign investment.

We work closely with other tax professionals, with Government and with the tax authorities, in this complex environment, to help ensure that Malta remains a competitive location for international business, operating in full compliance with applicable EU and other relevant legislation.

Split of 2014 fee income

25%Advisory 33%

Tax

42%Statutory Audit


Advisory

The firm recorded a growth of 28% in advisory services income in 2014. While in part driven by a major regulatory assignment (see below), growth was registered across the whole spectrum of the firm’s activities in this area. The Advisory group had a partner and staff complement of 61 at 31 December 2014, focused exclusively on such work.

The size of our client base has enabled us to recruit and develop specialists across a varied spectrum of services in advisory (deals and consulting), and to bring these to bear on client issues in conjunction with our audit, accounting and tax capabilities.

Our strength often lies in the firm’s ability to combine these offerings to help meet a client’s particular needs. We offer a service, and not products, supported by our ability to field teams from across the different lines of service; and by our ability, where necessary, to leverage the experience and specialist skills available across the PwC network. Many of our competitors in consulting cannot offer this combined approach.

Our client relationships are based on a mutual respect that recognises, inter alia, our reporting responsibilities; and the need to maintain our professional independence and objectivity.

A list of the public interest entities (PIE’s) currently audited by the firm is set out in the appendix to this publication. This list includes listed companies, banks and insurance companies, which are defined as PIE’s in terms of law, and for which additional independence requirements need to be met to safeguard the public interest.

The firm attaches importance to the maintenance of independence on audit engagements, and this requires care when providing non-audit services to audit clients. Certain services are deemed incompatible with an audit mandate, and are not provided to assurance clients. These include valuations that impact the statutory accounts that we are opining upon, book-keeping services to public interest entities and any assignments that require us to take executive decisions

– as against advising a client who is sufficiently familiar with the subject matter to make informed decisions independently of us.

In all cases, the final decision as to whether a non-audit service can be provided rests with the audit partner, who must also consider how any potential independence threats should be mitigated.

Further information on the safeguards applied by the firm on this topic is set out in the section ‘Committed to transparency’ of this annual report.

Our non-assurance services are offered to the business community at large. Excluding routine tax compliance services, which are closely allied to our audit of tax provisions, 64% of our non-assurance services were in 2014 delivered to a range of clients, both in the private and public sector, with whom we have no audit relationship. A number of the services that we offer, such as business and property valuations, would in certain circumstances not be provided to our audit clients to avoid any subsequent self-review independence threats.

In the course of 2014, as part of an EU wide asset quality review (AQR) of the banking sector, the firm was selected by the MFSA to assess and report on one of Malta’s major banks.

Our primary assignment was led by Fabio Axisa, an Assurance partner who leads the firm’s specialist banking unit, supported by staff drawn from the unit and from the firm’s Advisory practice. It entailed a thorough assessment of the bank’s loan portfolio, adopting selection and assessment criteria set by the ECB.

A secondary assignment, led by Ryan Sciberras, an Advisory partner, focused on the valuation of properties held as security by the bank.

These two exercises entailed between them an input of over 400 man weeks, delivered successfully over a limited time span. They were among the larger non-statutory audit assignments delivered by the firm in 2014. They served to demonstrate the firm’s ability to undertake and manage large, complex assignments; and its ability to field expert teams drawing from the varied range of skills and backgrounds at its disposal.

Independence considerations

Source of tax and advisory billings

45%Audit clients

55%Non audit clients

Excluding the AQR exercise mentioned opposite, no one external client, audit or otherwise, accounted for more than 1.6% of the income of the firm during 2014.


In 2014, the firm has maintained its commitment, launched in mid-June 2013, to dedicate €1 million worth of pro-bono services annually towards start up businesses with an innovative business idea.

In this initiative, PwC Malta is collaborating with other key local institutions, the University of Malta, Times of Malta and Microsoft Malta, amongst others.

We have to date received 87 applications, which are reviewed by a Selection Committee that meets on a regular basis. They span across a number of industries, with the majority being related to the ICT sector. Most relate to ventures that are in the research development phase or have been in operation for less than one year.

The Selection Committee has accepted 72 applications. Of these, 44 start ups are currently in the program and are being mentored by our staff in the hope these will take off and become successful businesses. The other 28 start

Assisting new business ventures – the PwC €1 million Start up Fund

ups have either dropped out or changed their business concept. Some of the entrepreneurs concerned have in fact reapplied for assistance in relation to a new business venture.

The services we have been providing to start ups primarily comprise assistance in the preparation and review of business plans; the raising of bank finance; the set up and registration of companies; and tax advice.

Our role within the start up community extends beyond the assistance provided to the individual start ups. Together with business incubators and committed organisations, we promote and encourage initiatives that could be of benefit to start up businesses. In this regard, we were delighted with Government’s announcement in the 2015 Budget of the introduction of initiatives aimed at increasing access to finance to SMEs.

The first of these initiatives is the Seed Investment Scheme where investors who take up an equity stake in start ups will

benefit from tax credits commensurate with the value of their investment. This incentive was followed by Government’s launch of Venture Capital Malta in February 2015, an initiative aimed at increasing Malta’s attractiveness as the ideal jurisdiction for the setup of venture capital firms.

The firm actively supports other initiatives assisting start ups, by providing mentors to business incubators across Malta; participating at various events that are held to promote entrepreneurship; and by delivering training sessions to aspiring entrepreneurs.


Applications received to 1 March 2015, by industry Applications received to 1 March 2015, by status

13Other

39ICT and E-Commerce

7Arts/Culture/Antiques

7Health

2Construction

4Education

2Agriculture

4Entertainment

9Retail

Engaging with clients

We look to be proactive in identifying and addressing client needs; and in sharing and collaborating with them. Clients keenly appreciate being kept adjourned on technical matters and on issues and trends that impact their particular industry, both locally and overseas.

During 2014, a total of 50 client newsalerts and newsletters were issued by the firm, covering accounting, income tax, VAT, regulatory and industry specific topics.

Training and development of our clients, our people and our alumni remain at the top of the firm’s agenda. We foster, internally and externally, a culture of life-long learning and self-development. Both the firm’s intensive internal training programmes, as well as all external training carried out by the firm, are undertaken by the firm’s training arm - PwC’s Academy. 27 open events were organised for clients and for alumni during 2014, attracting a total of around 800 participants. The Academy also trained more than 900 participants during client specific training activities.

This included 94 Data Protection Officers who obtained a certification in Data Protection (MQF Level 5 award) and around 450 government officials who were trained in a variety of subjects related to Accounting, Financial Management, Budgeting and Information Management.

As a Higher Education Institution, (a recognition awarded by the National Commission for Higher Education - NCFHE - during 2014) PwC’s Academy continues to nurture its already well established profile as a quality training provider. This recognition has also given the Academy the opportunity to develop training programmes which are recognised on both a national and international basis in those areas where we feel we can develop Malta’s workforce into better professionals. As a result of this, PwC’s Academy launched 2 certifications during 2014: ‘A Practical Certification in Accounting and Office Administration’ Award (MQF Level 4) and ‘A Certification in Data Protection Law, Regulations and Practice’ Award (MQF Level 5).

The Academy has also been asked to contribute actively to the training and development for current and prospective employees within the Financial Services Sector by becoming a member of the MFSA Education Consultative Council.

In 2015, the Academy plans to remain the platform through which PwC channels its commitment towards education and continuous professional development by promoting its technical expertise and extending its service offerings around 5 main pillars: Accounting and Tax & Legal, Leadership, Management & Business, Kids & STEM Education, IT Professional courses and End User Business Solutions, Continuous Professional Education events.

The firm will also be extending its training facilities in the course of 2015 to include four additional lecture rooms that will be fully dedicated to technology courses and to its full time ACCA and ACA students, freeing all existing facilities for other events.

33%Research and

Development stage

41%Pre start up or new companystart up (less than 1 year old)

13%Early stage full time project (more than 1 year old)


04

Committed to transparency

The number of partners of the firm who are Certified Public Accountants holding a practicing certificate in auditing, and the percentage of voting rights in the firm held by such partners and directors, are materially in excess of the thresholds established in article 10.4 of the Act.

Governance and management structureThe governing body of the firm is the partner group, which meets at regular intervals to discuss strategy and to monitor the firm’s progress.

Legal structure and ownership PricewaterhouseCoopers (PwC) is a civil partnership governed by Maltese law. The firm is owned by a group of 18 members, commonly referred to as partners, all of whom are professionals active within the practice.

The firm is registered as an audit firm with the Accountancy Board in terms of the Accountancy Profession Act (the Act). Kevin Valenzia is the firm’s Compliance Principal in terms of the Act.

The firm is organised in three service lines, namely Assurance, Tax (including Company Administration), and Advisory.

Service line issues are delegated to subsidiary boards comprised of all the partners in the respective service line, together with the territory senior partner.

Dedicated boards are also devoted to managing human resources, business development, training, risk management and technology. These boards have a role across all lines of service.

This structure ensures that all partners are actively involved in the management of the firm, while that certain partners carry specific executive roles, reporting to the partner group as a whole.

The structure of our firm

The PwC Annual Conference 2014


Network arrangements and network firmsIn most parts of the world, the right to practise audit and accountancy is granted only to firms that are majority-owned by locally qualified professionals. PwC is a global network of separate firms, operating locally in countries around the world.

PwC firms are members of PricewaterhouseCoopers International Limited and have the right to use the PricewaterhouseCoopers name.As members of the PwC network, PwC firms share knowledge, skills and resources. This membership enables PwC firms to work together to provide high-quality services on a global scale to international and local clients, while retaining the advantages of being local businesses including being knowledgeable about local laws, regulations, standards and practices.

PricewaterhouseCoopers International Limited PricewaterhouseCoopers International Limited (PwCIL) is a UK private company limited by guarantee in which PwC firms are members. PwCIL acts as a coordinating entity for PwC firms and does not practise accountancy or provide services to clients.

Our firm as part of a global network

We believe that the key factors that differentiate PwC among the world’s leading professional services organisations are the talent of our people, the breadth of the PwC network and the standards with which PwC firms comply. These standards cover important areas such as service quality, governance arrangements, independence, risk management, people and culture, and brand and communications. PwC firms agree to follow network standards and their compliance with these standards is monitored regularly.

PwCIL works to develop and implement policies and initiatives to create a common and coordinated approach for PwC firms in key areas such as strategy, brand, and risk and quality. PwC firms can use the PwC name and draw on the resources and methodologies of the PwC network. In return, member firms are required to comply with certain common policies and the standards of the PwC network.

Standards and internal quality control systems Every PwC firm is responsible for its own risk and quality performance and, where necessary, for driving improvements. Each PwC firm is also exclusively responsible for the delivery of services to its clients.

To support transparency and consistency, each PwC firm’s Territory Senior Partner signs an annual confirmation of compliance with certain standards. These cover a range of areas, including independence, ethics and business conduct, Assurance, Advisory and Tax risk management, governance, anti-bribery and data protection and privacy.

These confirmations are reviewed by others who are independent from the PwC firm in question. Member firms are required to develop an action plan to address specific matters where they are not in compliance. The action plans are reviewed and their execution monitored. There are some common principles and processes to guide PwC firms in applying the network standards. Major elements include:

The way we do business PwC firms undertake their business activities within the framework of applicable professional standards, laws, regulations and internal policies. These are supplemented by a PwC Code of Ethics and Business Conduct for their partners and staff.

Sustainable cultureTo promote continuing business success, PwC firms nurture a culture that supports and encourages PwC people to behave appropriately and ethically, especially when they have to make tough decisions.

Quality in what we do

PwC people have ready access to a wide array of support networks within their respective firms – both formal and informal – and technical specialists to help them reach appropriate solutions. The foundations of PwC’s culture are objectivity, professional scepticism, cooperation between PwC firms and consultation.

Kevin Valenzia addressing thePwC - BOV Family Business Forum, May 2014


reviews of all of its services, but also includes consideration of a member firm’s processes to identify and respond to significant risks.

For Assurance work, there is a specific quality review programme based on relevant professional standards relating to quality controls including International Standard on Quality Control 1: ‘Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements’ (‘ISQC1’).

The overriding objective of the assurance quality review programme is to assess for each PwC firm that:

quality management systems are appropriately designed, are operating effectively and comply with applicable network standards and policies

engagements selected for review were performed in compliance with applicable professional standards and PwC Audit requirements, and

significant risks are identified and managed appropriately.

A member firm’s assurance quality review programme is monitored, as is the status and effectiveness of any quality improvement plans a PwC firm puts in place.

External inspectionsUnder procedures introduced in 2007, the Quality Assurance Oversight Committee of the Accountancy Board is responsible for undertaking an inspection of the audit quality of all registered auditors in Malta.

The most recent inspection of our firm was completed in 2014, with satisfactory results.

Policies and processesEach PwC firm has its own policies, based on the common standards and policies of the PwC network. PwC firms also have access to common methodologies, technologies and supporting materials for many services. These methodologies, technologies and content are designed to help a member firm’s partners and staff perform their work more consistently, and support their compliance with the way PwC does business.

Quality reviewsEach PwC firm is responsible for monitoring the effectiveness of its own quality control systems. This includes performing a self-assessment of its systems and procedures and carrying out, or arranging to have carried out on its behalf, an independent review. In addition, the network monitors PwC firms’ compliance. This includes monitoring not only whether each PwC firm conducts objective quality control

Policy and resourcingObjectivity is the hallmark of our profession, at the heart of our culture and fundamental to everything we do. Independence underpins objectivity and has two elements: independence of mind and independence in appearance.

PwC firms reinforce both of these elements through a combination of setting the right tone from the top, independent consultation on judgemental issues, detailed policy

requirements including prescribed processes to safeguard independence, training, and careful observance of independence requirements.

PwC’s Global Independence Policy – based on the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants – contains minimum standards with which PwC firms have agreed to comply. The policy is supported by detailed

guidance on the rules and principles to be applied in evaluating the provision of non-audit services to audit clients.

PwC firms impose supplementary independence restrictions and processes by reference to local regulatory and ethical requirements, when necessary. These may have cross-border effects. Each PwC firm is required to have a partner responsible for independence matters, supported by adequate and trained resources. The designated partner in Malta is Lucienne Pace Ross.

The Hon Dr Joseph Muscat, Prime Minister, addressing the firm’s 2014 Annual Conference

Safeguarding our independence


The Assurance, Tax and Advisory lines of service provide training and other materials dealing with independence considerations related to the provision of non-assurance services.

Our tax and advisory partners and staff support our statutory audit service in specialised areas such as taxation, valuations and impairment reviews, regulatory compliance and systems and process assurance. Moreover, the collective experience and insights our professionals gain from providing these services increase our ability to understand companies’ business and risks – thus benefiting audit quality.

ComplianceOur compliance processes rely on a combination of business activities, controls and monitoring systems.

Our network has detailed policies and processes to evaluate the potential impact of a proposed non-audit service on the reporting PwC firm’s independence.

TrainingEach PwC firm is responsible for developing and implementing an appropriate independence training plan for its partners and practice staff, including the requirements around personal interests and relationships, services that may and may not be provided to audit clients, and business relationships. The network provides illustrative materials for use by PwC firms.

The provision of non-audit servicesTo conduct quality audits on large enterprises, 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. Such services however need to be provided within the independence restrictions relevant to firms that also perform statutory audits.

and are required to be approved, recorded and regularly monitored for changes that may impact the independence assessment. Similarly, any independence implications raised by proposed acquisitions by PwC firms are evaluated and addressed to maintain compliance with any relevant regulatory requirements.

As well as these and other independence compliance-monitoring systems, PwC firms operate a number of confirmation and verification processes that provide information relevant to independence compliance, such as:

annual compliance confirmations by partners and practice staff, and

inspection and compliance-testing programmes at firm and engagement levels. Such inspections look at, among other things, compliance with the requirements relating to partner rotation and partner evaluation and compensation.

PwC Malta won a tender for the European Commission to carry out a study across 31 EU/EEA states on the potential areas of cooperation between online gambling authorities. The task involves gathering data through subject matter experts in Europe. The Malta team compiled a set of questionnaires that were used to gather input from Regulatory Authorities; Operators; Service Providers and Industry Associations and analysed the feedback. The task also involved compiling a report on the current state of online gambling regulation in each country. The report was delivered to the European Commission DG-MARKT and presented during two meetings in Brussels of the Online Gambling Experts Group, which is made up of representatives from each EU state Government.

The project was the first assignment led by the Malta firm with the European Commission as the client. Besides being an extremely topical subject on the evolving EU regulation in a sector that is so significant to the Malta economy, it provided local experience in the protocols involved when dealing with the European Commission and in publishing an official report on a sensitive subject. It also strengthened the expertise of the Malta i-Gaming team that led to being awarded the project in the first place and provided an opportunity to consolidate the collective knowledge and structure of the EU-wide PwC network.

PwC firms are required to obtain authorisation from the group audit engagement partner regarding the provision of non-audit services to entities on the ‘Independence List’. Authorisation is only given after careful analysis of whether the service could impair the reporting firm’s independence by reference to policy requirements and external regulatory requirements, including an evaluation of threats to independence and available safeguards.

Partners and client-facing managers in all PwC firms are also required to record the details of their investment portfolios on a confidential database that provides real-time monitoring of the permissibility of investments held against an ‘Independence List’ of prohibited securities.

Joint business relationships are evaluated for compliance with any relevant regulatory requirements and for any threats to independence,


PwC firms are required to have disciplinary policies and mechanisms that promote compliance with independence policies and processes, and to report and address any breaches of independence requirements which, even with the control processes outlined above, may occasionally occur.

This would include, where appropriate, discussion with the client’s audit committee regarding an evaluation of the impact of the breach on the independence of the firm and the need for safeguards to maintain objectivity.

Those charged with governance PwC firms recognise the importance that those charged with governance – including audit committees – play in overseeing the auditor’s independence, including overseeing the nature of other services that they provide and the fees payable. PwC audit teams work closely with those charged with governance on public company audits and have regular dialogue on matters that may be seen to influence independence, including the provision of other services.

Partner remunerationOur partner remuneration system includes three core elements for which partners are rewarded: first, the role they are asked to play in the partnership; second, how well they carry out their responsibilities, with a particular emphasis on quality; and, third, how well the firm performs as a whole.

Within this framework, the determination of an individual partner’s rewards hinges on a balanced scorecard evaluation against individual and team objectives.

Where financial performance is concerned, partners are rewarded on the basis of the performance of the firm as a whole, and not on the basis of the fee income generated by a particular service line or client.

MonitoringRegular reports, based on documented monitoring procedures, are submitted to the partner group by the partners responsible for risk management and for monitoring quality in terms of ISQC1, to ensure the proper operation of the procedures described above.

The review of our systems of internal control has not identified any failings or weaknesses that have been determined to be significant.

The firm attaches great importance to confidentiality and to the management of potential conflicts of interest. While very active in the corporate finance arena, the firm does not act as the originator of potential transactions, as this would entail having to choose between clients as to where to direct a business opportunity.

Conflicts of interest may arise on non-audit services, in particular when clients request assistance on purchase or sale transactions that may involve other clients in a counter party or competitor capacity.

Generally speaking, depending on the nature of the bid and the role requested from us, our firm prefers to act for only one party in a competitive bidding situation. When approached by more than one company to assist on a particular transaction, and after ensuring, where applicable, that we are able to assist on the transaction concerned within the constraints of audit independence rules, we act for the party that first approaches the firm.

Managing potential conflicts of interest

In certain cases, it may be considered appropriate to assist more than one bidder. In such instances, all the clients concerned are advised that we would not be acting on an exclusive arrangement. The work concerned would in these cases be handled by teams working in a strictly segregated fashion. Such situations typically arise when the work requested from us is relatively limited, e.g., reporting on the proper technical preparation of the financial projections supporting a bid.

When we act for Government as its advisor in a privatisation or in the formulation and award of a public sector contract, we recognise that in the interest of public transparency such work must always be conducted on an exclusivity basis. We would expect, as a matter of probability, that a proportion of the eventual bidders will be clients in one capacity or another of the firm or of other members of the PwC network. In all such cases, we decline from acting for any of these clients in relation to the bid concerned.


Creating value for our people

05

University graduatesWe are one of the largest organisations recruiting from University, principally Masters in Accounting graduates.

Our CareerDeal provides students with a training programme which moves in parallel with their university studies, as well as work experience at different times of the year.

The firm currently has 90 students on CareerDeal. The programme is managed by our dedicated human resources group. It is also supported by all our managers, who play a key role across all the activities of the firm.

25

Recruitment in 2014

28ACA/ACCA intakeDuring 2014, 28 staff members joined the firm after completing their ACA or ACCA qualifications, or as students who work with the firm on a full-time basis. A significant number of these staff already hold a tertiary level first degree. Other students opt to study for an ACA/ACCA qualification on a full time basis after they obtain their ‘A’ Levels, or after they complete a first degree at University. For both streams, PwC’s Academy ACA/ACCA study programmes aim to accelerate the learning curve of students and offer a fast track route into the profession.

49Experienced hiresThe recruitment of experienced professionals both locally and overseas was particularly high in 2014 as the firm sought to make a step change in its staffing levels. A total of 37 expatriates were recruited in the course of the year, including professionals who have worked with other PwC network firms overseas. Today, the firm has a total of 52 overseas staff within its ranks, drawn from Brazil, Cyprus, Germany, Italy, the Philippines, Slovakia, Russia and Ukraine.Our recruitment is not limited to accountancy graduates and students. Our advisory and tax practices are increasingly reliant on the recruitment of non-accountants at all levels of the firm. Moreover, a number of our accountants in these two service lines hold post-graduate degrees in other disciplines such as taxation, financial services, IT and economics.

Our ongoing recruitment efforts entail a significant investment by the firm, but serve to ensure a staff intake from different backgrounds that is not limited by the number of accountants graduating annually from university.

9Support StaffFull-time study trainees

82


Developing our staff

The ongoing development of staff once they join the firm centres around a Personal Development and Coaching system, supported by a comprehensive and fully integrated training programme.

The system entails: Assigning a development coach to

all staff within the firm. Setting and agreeing personal

development objectives aligned with the firm’s goals.

Providing feedback after the performance of material assignments and at periodic intervals. This process entails formal manager and partner meetings with all staff, and serves as a determining factor in an individual’s career progression.

Attendance to a series of courses throughout one’s career with the firm. Courses may be technical in their content, or may deal with the development of personal skills, the use of IT and the values of the firm – the PwC Experience.

This training ensures that our people are alert to regulatory changes, reinforces their awareness of key compliance matters and supports the wide range of industry expertise and specialist skills available across the firm.

Training courses are progressive in their design, with each year’s courses building on the earlier training given to an individual.

Courses are generally held in our training centre in Qormi, which was expanded in 2013 and which now includes four lecture theatres which can be utilised concurrently. Attendance at overseas courses and gatherings is however a regular event, especially on specialist topics.

15,401 hrsTechnical

32,143 hrsPersonal development

and firm’s affairs

Staff attendance at training courses during 2014 (hours)

Full-time CareerDeal and ACCA students are excluded from the statistics

Staff complement at 31 December 2014

Accountants 243

Other professional staff 30

Staff pursuing professional studies 63

Non-qualified, including support staff 55

Full-time staff complement 391

CareerDeal students 90

ACCA full-time study programme students 49

Extended staff complement 530

Employee age structure

4% 10% 26%2% 18% 40% 0%

30 or less

31 to 45years

Over 45years

10%

20%

30%

40%

50%

male female

Our staff are 61% female and 39% male

29years

Average age of our staff


Commitment to the firm

A total of 39 social and sports events were organised by our Social Activities Committee and service lines in 2014.

The year was a particularly busy one in all our lines of service. A special word of thanks to all our partners and staff for their unwavering commitment.

This commitment was visible as well in the results of our annual people survey. As in past years, the results of the survey underlined that our staff were proud to work at PwC, and of what the firm stood for.

The firm’s annual PwC Experience prize was in 2014 awarded to Luke Spiteri. The PwC Experience programme seeks to optimise the manner in which our people interact both with clients and with their peers. PwC Experience is looking to differentiate the client’s experience in working with our firm. The programme is fully embedded within the firm’s processes, including all aspects of quality assurance, training, staff development planning and staff reviews.

Contributing to PwC

Our people form part of the PwC global network, to which they contribute in a variety of manners:

We participate in various specialists courses held overseas, both by sending participants and by making lecturers available. We attend and participate at all levels in various network meetings and gatherings that concern our operations. This entails

regular overseas travelling attending various leadership and service line meetings; and a number of technical, training and IT services meetings.

We host and help organise network courses and other meetings held in Malta. Partners and managers from the firm participate annually in quality control reviews of other member firms. We participate in cross border panels that are convened on a regular basis to assess and approve large proposals from a risk

management perspective; or to form an opinion on complex technical issues. We contribute, both financially and in terms of making time available, in the development of the network’s methodologies.

John Zarb retired from the partnership at the end of 2014 after a 40 year career with the firm. He will continue to assist the firm in a consulting capacity. During his career, John made a material contribution towards the development of the firm’s Advisory practice, which he led for many years. He also acted as the firm’s accounting technical partner and represented Malta on the EU Accounting Regulatory Committee. John served as a council member and president of the Malta Institute of Accountants, a member of the Accountancy Board and lectured in auditing at the University of Malta.

Mirko Rapa was admitted to the partnership on 1 July 2014. Mirko joined the firm in 2002 after successfully completing his ACCA exams and obtaining a Bachelor of Accountancy degree from the University of Malta. During the past 12 years, he formed part of the tax service line but was also involved in assurance engagements. Mirko’s international experience has included a secondment to the international tax department at PwC Berlin, and participation in the PwC Genesis Park leadership development program in the US. Mirko provides tax advice to a varied portfolio of clients, including individuals and entities operating in different sectors.

PwC Malta scored amongst the top three territories within the PwC Central Cluster

“The leaders I work with are committed to providing high quality services to external clients.”

“I have a good understanding of PwC's overall business strategy, direction and goals.”

“Territory leadership has communicated a vision of the future that motivates me.”

Our firm placed among the top three territories in our cluster on the following questions:


Our corporate responsibility strategy looks at four objectives: Contributing to the wider

community, and to our profession Reducing our footprint on the

environment Making the office a better place to

work in for our people Assisting clients in integrating

corporate responsibility goals within their business strategy, through our sustainability services.

SharingVarious activities were carried out during the year including the firm’s ongoing partnership with Din l-Art Helwa. This included voluntary work such as gardening, photography, back office and administration work, maintenance work at various sites, organisation of events and fund-raising. During the summer months, our 2nd year CareerDeal students were each assigned for 35 hours to assist Din l-Art Helwa.

Moreover, as part of its corporate social responsibility programme, in 2012 the firm agreed with Din l-Art Helwa to

fund the restoration of paintings and frescoes at Our Lady of Victory Church in Valletta. The firm’s commitment to this restoration process extends over a period of ten years.

The firm continues to play an active role in supporting various professional bodies and the University, through the provision of partners and managers who participate on the council of the Malta Institute of Accountants, the Institute of Financial Services Practitioners and the Accountancy Board, or as lecturers and tutors at University.

Our CSR contributions during 2014 included:

Expending €97,500 in time value on activities related to the profession.

Pro-bono work with a time value of €105,000 on various charities and community organisations, such as the annual L-Istrina charity program.

A total of cash donations of €41,500 to various worthy causes including cash amounting to €8,250 collected by staff during social functions.

Corporate responsibility

Restoration work in progress at Our Lady of Victories church - Good Shepherd painting

Reducing our environmental impact

We take an active part in contributing to sustainable development, both in our operations and by raising awareness and improving the understanding of environmental issues with our clients. Our Sustainability Advisory Services support our clients in addressing environmental and social challenges, and in communicating better with their key stakeholders.

The way in which we work also has an impact on the environment, and we consistently undertake and discuss improvements to minimise this impact.

We monitor and manage this impact. We track our performance in terms of environmental KPIs on a monthly basis. A team set up for this purpose, internally referred to as the Green Team, meets on a quarterly basis to consider results and actions that may be appropriate. The results of its activities are disseminated within the firm.

Particular care was taken in the design and development of our offices in Qormi, where we implemented a number of energy saving solutions - improved distribution and flexibility in controlling air conditioning units to achieve better temperature control, particularly in open areas and taking into consideration the proximity to external windows; insulation within the roof lightweight structure which helps to reduce ingress of heat; use of glass with thermal insulation properties on all external apertures and shading devices on all south and west facing apertures to reduce air conditioning load; installation of energy saving

lights throughout most of our premises together with motion sensors that turn off lights when floors and rooms are not in use - sensors also control electricity intensity depending on the availability of external light; and the use of collected rainwater to supply all our restrooms, amongst other measures.

We aim to measure our carbon footprint on a regular basis. The operational boundary of our footprint calculation looks at the below elements together with travel (including travelling to work and to meetings, locally and overseas) and laptops as our main consumables.

6% 5%

Electricity

Decrease in electricity consumption (2014 compared to 2013).

Water

Decrease in consumption of first class water (2014 compared to 2013).

Paper

Commitment to become a paperless office.


Recognising achievement

Many of the firm’s staff attained personal achievements in the course of 2014, both in professional activities, their family life and in a variety of other areas, such as sports.Braden Sammut, one of our graduate intake, was awarded the prize for best dissertation in the area of Financial Accounting.

Six of our ACA/ACCA students – Steve Bilocca, Michael Micallef, Julian Mizzi, Luke Spiteri, Glorianne Xuereb (in two consecutive sessions) and Philip Zammit – attained high local and global placings in their examinations. As already mentioned in this review, Luke Spiteri also won the firm’s PwC Experience award.

Many of our partners and staff are active in the arts, in sports and in other activities. It is not practical to list all these achievements, but they include five employees who participate in national teams, namely Max Galea – rugby, Nicholas Farrugia – Futsal, Kirsty Caruana – gymnastics, Philip Schranz – football and Vladyslava Kravchenko - swimming (paralympics team).

In 2014 PwC launched Kids@PwC, a summer programme that is aimed at exposing children to the exciting world of IT and Robotics. Throughout the programme, children are exposed to and have a chance to experiment with actual IT components and real IT scenarios, stimulating their creativity.

This programme was attended by, but was not limited to, a number of children whose mothers have to balance a career within PwC with taking a primary role in their family’s upbringing. With females accounting for over 60% of our workforce, the firm has an interest in providing working mothers with flexibility in how to approach their

career, including working on reduced hours.

To assist employees with young children, the firm also maintains a child care centre situated adjacent to its offices. First Steps@PwC is operated jointly by Chiswick House School and Giggles Nursery for children aged 6 - 36 months. It helps children take their first steps in a safe and happy learning environment where they feel cared for and where development and learning are encouraged and celebrated; and in a location close to where their parents are working. The nursery currently caters for around 80 children.


The Accountancy Profession Act defines a Public Interest Entity (PIE) as an entity whose transferable securities are admitted to trading on a regulated market of any EU Member State within the meaning of point 14 of Article 4(1) of Directive 2004/39/EC, a credit institution as defined in point 1 of Article 1 of Directive 2000/12/EC of the European Parliament and of the Council of 20 March 2000 relating to the taking up and pursuit of the business of credit institutions, or an insurance undertaking within the meaning of Article 2(1) of Directive 91/674/EEC. The PIEs currently audited by the firm include:

Arnold Clark Life Insurance (Malta) LtdAtlas Insurance PCC LtdBastion Insurance Company LtdBuilding Block Insurance (Malta) PCC LtdCafina Assurances Ltd Elmo Insurance LtdErgon Insurance LtdFalcon Insurance LtdGasanMamo Insurance LtdMSV Life plcMulti Risk Indemnity Company LtdMulti Risk Benefits LtdOne Insurance LtdOney Insurance (PCC) LtdOney Life (PCC) LtdPractice Plan Insurance LtdRhenas Insurance LtdShield Insurance Company LtdSN SecureCorp Insurance Malta LtdTaurus Insurance LtdWerla Insurance Ltd

Public Interest Entities audited by the firm

Following the appointment of PwC UK as HSBC Group’s auditor, it is expected that PwC Malta will be appointed auditor of HSBC Bank Malta plc and of HSBC Life Assurance (Malta) Ltd in the course of 2015

Listed BondsGasan Finance Company plcMizzi Organisation Finance plcPendergardens Development plcTumas Investments plcUnited Finance plc

Listed FundsAmalgamated Investments Sicav plcGlobal Funds Sicav plcHSBC No-Load Funds Sicav plc Malta Government Bond FundHSBC No-Load Funds Sicav plc Maltese Assets FundHSBC Malta Funds Sicav plc Malta Bond FundRohfund Global Funds Sicav plcTimeless Precious Metal Fund Sicav plcThe Timeless Energy Fund Sicav plcVilhena Funds Sicav plc

Listed EquityGO plcLombard Bank Malta plcMalita Investments plcMaltaPost plcMidi plcPlaza Centres plcSimonds Farsons Cisk plcTigne Mall plcUnibet Group plc

Credit InstitutionsBanif Bank (Malta) plc Central Bank of Malta CommBank Europe Ltd Ferratum Bank (Malta) LtdIIG Bank (Malta) Ltd

Insurance CompaniesAarhusKarlshamn Insurance Malta LtdAllcare Insurance LtdArnold Clark Insurance (Malta) Ltd

Appendices

06


Partners

Territory Senior Partner responsible for the overall management of the firmTax partner

Kevin Valenzia

Tax partner

Bernard Attard

Assurance partner, banking and capital marketsAccounting technical leader, Regulatory affairs partner

Fabio Axisa

Assurance partner

Stefan Bonello

Assurance partner, asset managementHead of Business Development

Joseph Camilleri

Tax partnerVAT specialist

David Ferry

Assurance partnerHead of Assurance

Simon Flynn

Tax partner, company administration

Chris Galea

Advisory partner, consulting

Michel Ganado

Tax partnerHead of Tax

Neville Gatt

Advisory partner, deals Head of Advisory

Joseph Muscat

Assurance partner, asset managementHead of Quality Assurance and Risk Management

Lucienne Pace Ross


Human Capital partner PwC’s Academy leader

Lisa Pullicino

Tax partner

Mirko Rapa

Advisory partner, consultingTechnology services leader

George Sammut

Advisory partner, deals and valuations

Ryan Sciberras

Assurance partner, insurance, pensions and iGaming

Romina Soler

Assurance partner Finance partnerHead of Human Capital

David Valenzia

2014 Review Malta Firm - PwC · 6 PwC 2014 Review Malta Firm 7 Serving our clients 03 Assurance Assurance remains a brand defining activity for PwC, one that most delineates its wider

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