Senior executives from the big four accounting firms have stood by their business practices, despite facing scrutiny over accountability, conflicts of interest, sexual harassment and staff conditions at the parliamentary inquiry into audit quality.
Partners from the four firms fronted the inquiry on Monday, which is investigating why the corporate regulator consistently finds issues with the quality of their audit work.
EY (formerly Ernst & Young) defended its work on an independent regulatory report, known as a CPS220 report, for NAB despite also being its external auditor. Concern over whether this was a conflict of interest was a key trigger for parliament calling the inquiry.
“To be absolutely clear there is not an ounce of doubt this [the CPS220 work] is a permitted piece of work,” EY partner Sarah Lowe said.
Despite insisting there was no “intimate relationship” between NAB and EY as its auditor, Ms Lowe then said that she attended meetings with then-NAB chairman Ken Henry about the independent report.
NAB’s group chief risk officer, Shaun Dooley, had earlier told the inquiry that “it was EY’s report, they [were] responsible for the contents of the report”.
The bank’s group chief financial officer, Gary Lennon, admitted that it could veto which EY staff worked on the report, however, and defended NAB seeing drafts of the report before it finalised.
EY charged NAB $450,000 for the work on the report, which included an $80,000 discount because of the firm’s role as external auditor.
Deloitte was also on the defence, as its executives dodged questions on whether it threatened the Australian Securities and Investments Commission (ASIC) that it “might wish to fight findings more often” if the regulator permitted PwC to publish its superior audit inspection results.
It also stood by the decision of one of its audit partners, Reuben Saayman, to “hide” audit documents of failed construction company Hastie after the Federal Court demanded their production. Deloitte is facing a shareholder class action over its audit of Hastie.
Mr Saayman relied on the legal privilege against self-incrimination to refuse the court order, which Deloitte has since argued extends to the entire partnership.
Despite Labor Senator Deborah O’Neill raising concerns about whether this compromised the accountability of partnerships, Deloitte chairman Tom Imbesi offered his ongoing support to Mr Saayman.
KPMG’s responses to staff misconduct was put under a spotlight, as Senator O’Neill asked if the firm had received 12 allegations of sexual harassment and 25 of bullying in the five years to 2018.
“At KPMG, we have zero tolerance for harassment, bullying and sexual harassment,” said KPMG’s head of audit Andrew Yates.
When pushed for detail about the firm’s response, however, he took the questions on notice as he was “not familiar with those numbers you’ve put on the table”.
PwC used its time in the stand to promote the need for greater transparency in the industry, after it become the first of the big four to reveal the overall grade assigned to its audit quality by the corporate regulator.
All four firms were asked about the conditions under which their staff worked, amid reports of junior auditors burning the midnight oil and the firms relying on cheap juniors doing the bulk of audits to drive profitability.
EY said it was only “on occasion” that staff worked outside of 7.5 hour days, while Deloitte backed the ratios of junior to senior staff it assigned to audits. KPMG also stood by its treatment of juniors.
This response from the firms follows junior auditors at Deloitte rebelling over work conditions and multiple submissions to the inquiry raising concerns with the treatment of junior staff.
One anonymous submission claimed PwC staff were treated as “human cattle”, while Macquarie University’s Professor James Guthrie called for better recording of hours worked by juniors.