PwC fined over Babcock
Big Four audit firm PwC is in trouble. This week, regulators at the Financial Reporting Council fined the firm £7.5m and two audit partners—Nicholas Campbell Lambert and Heather Ancient—a total of £265,000, for work undertaken for defence firm Babcock International.
Both sums were then reduced for early admissions. The FRC said the firm and partners were responsible for “repeated failures to challenge management and obtain sufficient appropriate evidence, reflecting a general reluctance to challenge management” on audits of long-term contracts and Babcock group revenue.
The FRC added there were examples of a “failure to follow basic audit requirements”, showing a “lack of competence, care or diligence”.
EY struggles with the split
Wondering what’s happening to your favourite tax advisers (don’t laugh, we’ve all got one—Ed.) at EY? Well, so are they. The Financial Times reports this week that the much vaunted split of consulting from all other business services has been “paused” because a decision cannot be reached.
The original aim was to spin off tax with consulting, a move designed to deal with mounting concerns of auditor independence and conflicts of interest.
However, according to the FT, there has been an internal backlash, with some arguing that more of the tax practice should remain with audit. You can see the attraction: rush away with the dynamic go-getting consultants, or the laid-back auditors? Tough choice. No wonder a global policy has come grinding to a halt.
Senate stymies Biden on ESG
Just in case you’re as open-mouthed in horror as we are by Washington’s bitter political battle over ESG, the Senate this week voted to kill a Joe Biden law permitting pension fund managers to consider ESG issues in their investment decisions.
Speculation is already rife that the move will trigger Biden into a rare presidential veto to push the “permissive”, not mandatory, rule through.
The Wall Street Journal reports that Republican senator Mike Braun is describing the new laws as “government in overdrive” because the ESG rule allows investment managers to push a “political agenda”. Meanwhile, Greta Thunberg shakes her head wearily (we made that bit up).
Bob’s your auntie
No doubt you’ve played around with ChatGPT online asking the AI model to predict your success at the lottery or your chances of becoming chair. Academics in Germany, however, have used another AI tool—RoBERTa—to predict companies that are just begging for a takeover. RoBERTa undertook a close textual analysis of company documents to analyse whether they were saying the kind of things that would flag their readiness for takeover.
Lennart Stitz and Nils Lohmeier at the University of Munster asked RoBERTa to look at more than 130,000 annual filings in the US and then make predictions. “Overall, these findings indicate that textual information contributes to the identification of mergers by extracting previously unused fundamental information from unstructured data.”
Cue a RoBERTa rush by activists and fund managers.
Going overboard
When it comes to talk of “overboarding”, counting public company board roles is only the tip of the iceberg. According to Patricia Lenkov, a board expert and founder of the advisory firm Agility, when considering whether a director has too much on their plate, they need to look at all the other roles they might have.
Speaking to the Financial Times podcast, Working It, Lenkov said big investors were worried about overboarding but were only focused on the listed company jobs. “So, right now, they’re saying, OK, public company CEOs can only sit on two boards and public company executives can only sit on two, but non-execs can sit on four.
“And then what you see is you have all these directors who are sitting on this number of public boards, but then they’re sitting on five, 10, sometimes more, private company boards.”
Your faithful Board Agenda staff can barely manage one job, never mind 10.