PwC Site visit presentation Non-confidential · Client case study PwC 28 Competition Commission site visit January 2012 Agreed FY11 fee Additional FY11 efficiencies identified FY11

Privileged and confidential - Prepared for the purpose of receiving legal advice

Competition Commission Site visit to PwC

11 January 2012

www.pwc.com

1PwCJanuary 2012Competition Commission site visit

Introductions

1

Private and confidential

Agenda

• Introductions / Discussion of agenda

• PwC business overview

• PwC’s audit service for large companies

• Client case study

• Break

Introductions


• Break

• Competitive pressures

PwC business overview

2


Newcastle

Edinburgh

Aberdeen

Glasgow

Dungannon

UK Firm overview

• Limited liability partnership owned by the partners

• Circa 16,000 people, 6,600 in Assurance

• 843 partners at 1 July 2011 (including 218 Responsible Individuals)

• 30 partners currently working for overseas firms



people joined in 2011

ReadingGatwick

Bristol

Milton Keynes

St AlbansCardiff

Swansea

Plymouth

Norwich

CambridgeBirmingham

Leeds

ManchesterHull

Liverpool Sheffield

East Midlands

BelfastDungannon

Uxbridge

Southampton

London

Gloucester

Bournemouth

Armagh

Portadown

Omagh

38 offices across the UK

2,482

were graduates

• 30 partners currently working for overseas firms

• Revenue £2,281m in FY11 (FY10: £2,193m)

• Regulated by the ICAEW, FRC and FSA

• Largest UK private sector employer of graduates

1,091

Source: PwC Transparency Report


International network

• Global network of separate member firms, owned and operating locally in countries around the world.

• PwC member firms agree to comply with common standards.

• PwCIL acts as co-ordinating entity for



766 locations

• PwCIL acts as co-ordinating entity for firms in the network; creating common and co-ordinated approach.

• Standards include independence, ethics and business conduct, risk and quality and client acceptance.

• Network enables PwC firms to provide a consistently high quality services on a global scale.

154 countries

161,718 PwC people

Source: PwC Annual Report


UK firm – how we go to market...

....as One Firm in order to focus on our clients’ needs

IndustryConsumer Industrial;Products & Services;Financial Services;

Technology, InfoComms;Entertainment & Media;

Government & Public Sector



Government & Public Sector

Region

London;South East;North;Midlands;Scotland;West & Wales;Northern Ireland

Segment

Entrepreneurs & Private Clients;Public Sector;Inbound;Private Equity;FTSE 100;Mid Cap


UK Firm – internal management

Executive Board

Advisory TaxAssurance Internal Firm Service

Supervisory Board

Public Interest Body



Corporate tax

Human Resource Consulting

Indirect tax

Personal tax

Business Recovery Services

Corporate Finance

Transaction Services

Consulting

Forensic Services

Sustainability & Climate Change

Provides strategic advice on transactions, performance improvement and crisis management

Provides direct and indirect tax advice and compliance services and HR consulting

Assurance on financial and non-financial performance including statutory audit

Provides support through specialised professional services for the rest of the business

Core Assurance

Risk Assurance

Services

Actuarial & Investment

Capital Markets &

Structuring

Finance

Infrastructure Procurement

Human Capital

Marketing

Communication & Business Development

Secretarial

Knowledge

Risk & Quality

IT

Partners and staff 4,100

Revenue £907m


Revenue £645m


Revenue £909m



UK Firm - Our vision and strategy

Iconic

Our vision



Who we are

Performance goals

Personal responsibility

PwC Experience

Source: FY12 and Beyond

Leading firm Growth Profit Quality


49%

51%53%

56% 57% 58%

51%

49%47%

44% 43% 42%40

50

60

70

UK Firm - Audit and non-audit service analysis

Percentage of UK firm turnover

49%

51%58%

42%



44% 43% 42%

28% 28% 27% 26% 27% 26%

23%21% 20%

18%16% 16%

0

10

20

30

40

Services to clients we do not audit Total services to audit clients

Statutory audits & directly related services Non-audit services to audit clients


28%

23%

26%

16%

£1,980m £2,107m £2,244m £2,248m £2,331m £2,461m2006 2007 2008 2009 2010 2011


Companies in the FTSE350 (2010) by size (turnover) and UK share of turnover

Our UK audit clients

International dimension

38% of the FTSE 100


31% of the FTSE 350

of which 11are US registrants


PwC’s audit service for large companies


A clear purpose

Building trust

�

Creating value

�

Developing professional leaders

�

PwC’s audit service to large companies


� � �Retaining and winning business


Game changers

Growth

Audit transformation

PwC’s audit service to large companies


People

Client Case Study

3


CONFIDENTIAL TEXT REDACTED

CONFIDENTIAL - TEXT REDACTED

Client case study




Engagement leader overview and perspectives

• Engagement leader role

• overview

• Interaction with management and audit committee

Audit involves team of

Client case study

Confidential –text redacted


Audit involves team of over 750 people

from assurance, tax and advisory

including 150 partners working across 95 locations


OverviewKey facts


Client case study




Voice of


Client case study





audit approach in 2006


Client case study





Looking forwards


Client case study




Global hours by year

250,000

300,000

350,000

400,000

Client case study

First year of Sarbanes-Oxley audit procedures

First year of IFRS consolidated financial statements


0

50,000

100,000

150,000

200,000

250,000

2005 (actual)

2006 (actual)

2007(actual)

2008 (actual)

2009 (expected)

2010 (expected)

Other Tier one Group


Scoping the audit

CONFIDENTIAL - TEXT

Client case study

• Achieve sufficient coverage of each material financial statement item and significant risk;



• Ensure risk based coverage aligning s404 and financial reporting requirements; and

• Derive maximum leverage from central or regional level testing.


Annual audit cycle

Post year end audit

proceduresQ3 review procedures

Update planning for year end

Announce ‘unaudited’ results

Views on controls presented to Audit

Fee discussions for next cycle begin

‘No surprises’ report presented to Audit Committee

issue Q3 results

Value add report discussed with Finance Leadership Team

Client case study

Views on significant risks presented to Audit Committee

Confidential –text redacted


Planning procedures

Issue instructionsto global team

Half yearreview

ContinuousCommunication and Site Visits

Interim controls sign off

presented to Audit Committee

Audited financial statements issued

Client perspectives review undertaken and built into FY11 plan

Audit committee meeting; auditor effectiveness review, presentation of annual plan

AGM includes reappointment of auditors

Significant issues report presented to Audit Committee

issue Q2 resultsConfidential –text redacted


Innovation and output


Client case study




CONFIDENTIAL – TEXT REDACTED


Client case study




Quality

Technical Client Service

Hot reviews – real time reviews performed by technical specialists.

Audit effectiveness review – performed annually by the audit committee prior to reappointment.

Quality Review Partner – conducts a pre-issuance review of all significant issues.

ISPR – post audit client satisfaction reviews performed by a senior partner independent of the team with directors.

Client case study

Confidential – text redacted



independent of the team with directors.

KPI review - quarterly hot review of certain audit files by staff independent from the audit team and self certification.

Client Satisfaction Surveys –questionnaires sent to clients assessingvarious aspects of service.

AIU review – annual reviews performed by regulators.

Client perspectives – independentinterviews performed with key stakeholders

Portfolio review of audit partners. Client debrief – with audit team.



Confidential – text redactedConfidential – text redacted


Value - Annual fee negotiation

€’000s

Actual FY10 audit fee

less 2010 non recurring scope changes

Confidential

Underlying FY10 audit fee - Text

Agreed FY11 efficiencies Redacted • CONFIDENTIAL – TEXT

Client case study


Agreed FY11 efficiencies Redacted

Agreed FY11 fee

Additional FY11 efficiencies identified

FY11 scope increases

FY11 scope reductions

Inflation

Actual FY11 fee** based on FY10 fx rates

• CONFIDENTIAL – TEXT REDACTED


Efficiency

• We constantly challenge our audit approach to achieve efficiencies

• Sophisticated buyers

• There are constant pressures in the market place

• Clients demand that we evolve with them

Client case study





Client case study



Competitive pressures

4


Market share and growth

• Market share pressures –the constant need to win

• Targeting new clients

• Competitor activity


124.33

94.33

26.83 (114.00)

(23.50)108.00

100

150

200

250

300

Nu

mb

er o

f au

dit

s

Evolution of FTSE350 clients: Q2 2001 to Q3 2011, PwC clients only


48%

50%

46%

44% 43%

48%

42%

41% 40% 39%

40%

38% 38%

37%

36% 35% 35% 34%

32%

35% 34%

31% 30%

29%

27%

29%

20%

25%

30%

35%

40%

45%

50%

55%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Vo

lum

e s

ha

re

(%

)

FTSE 100

FTSE 250

FTSE 100 and 250 audit client share 1998-2010

“We are focusing in those

market areas that will give

sustainable growth”.

2011 Assurance Strategy

-

50

100

Clients in Q2 2001

Clients gained due to

FTSE350 ENTRY

Clients gained due to

switches

Clients lost due to

FTSE350 EXITS

Clients lost due to

switches

Clients in Q3 2011

Nu

mb

er o

f au

dit

s



We have had some success in winning new clients

The net635 initiative is on track to deliver £40m additional audit revenue through net client wins by the end of FY12…

… driven largely by several high-value client wins in FY11. Further net wins have been limited by client losses and unsuccessful pitches


635 initiative: progress as at 31 July 2011 635 initiative: largest client wins and losses in FY11:

Wins Losses




Source: Assurance Strategy Partner Briefing


635 initiative: significant lost audit pitches in FY11:

Unsuccessful pitches








The risk of tender

Number of High Gross Risk Scores by Risk Type

25

30

35

40

79 Responses




Source: PwC Audit Relationship Risk Diagnostic 2011

0

5

10

15

20

25

Business Environment

Strategy and Operations

Change Key People

Rotation Challenging Relationships

Quality of Service

Identifying Issues

Financial Health

Market Test Competitor Activity



Transformation – streams and objectives












People and talent

• Total graduate recruitment costs

• Total costs of staff development (including professional exams) for FY11

• Staff training hours

• Diversity






• Diversity

• Retention

• PwC Experience








Financial reporting and audit agenda – PwC’s views on issues and the way forward

• Corporate failure and auditors’ responsibility

• Risk of audit firm failure

• International regulatory initiatives

• Risk of unforeseen consequences



“We recognise that we have a very significant public interest responsibility and we take it very seriously”

Richard Sexton


The 4 pillars

• The consequence for audit firms of losing clients, and the risk of doing so, compels them to compete keenly on quality and

Outcomes are competitive - prices are reasonable, quality and

innovation are high, profits are reasonable:

• Consolidation and growth in the large audit sector has been a result of demand in an increasingly complex and international world,

Large companies require a distinct

service:

• There is sufficient choice of auditors for large companies and fierce competition between the largest firms (and on occasion smaller firms), which actively target each other’s customers.

• PwC differentiates through investing in people, systems and methodologies, specialisations, and geographic coverage.

Competition between large audit firms:



keenly on quality and price.

• There is sufficient switching across the market for the threat to tender to be credible.

• The market works efficiently.

• Quality is high but there is recognition that audit needs to continue to evolve.

and international world, where large companies have global demands.

• The market recognises that the largest audit firms have the necessary attributes to carry out large company audits.

• Mid-tier firms are relatively more competitive in relation to smaller, less complex audits.

• Customers are largest companies in the UK – they can and do maximise value from their auditors.

• Boards and audit committees contain experienced individuals who understand audit and are familiar with a range of auditors.

• Large companies exert significant competitive pressure without formal tenders. Most pressure on audit quality and price comes from the threat to tender if service is unsatisfactory.

• The market is not commoditised - audits are tailored to customer needs and benefit from institutional knowledge.

Large companies are effective purchasers:

Discussion and closing remarks

5

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

© 2012 PricewaterhouseCoopers LLP. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers LLP (a limited liability partnership in the United Kingdom) which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.

RD-2011-12-22-1151-SM

PwC Site visit presentation Non-confidential · Client case study PwC 28 Competition Commission site visit January 2012 Agreed FY11 fee Additional FY11 efficiencies identified FY11

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