Bob Moritz, chairman of PricewaterhouseCoopers LLP since July 2009, sat down with Accounting Today on Friday to discuss some of the issues facing the accounting profession and how PwC has been adapting to changes in the economy and accounting, as well as his encounter with Michelle Obama when handing her the envelope for the Academy Awards.

He sees pricing pressures in the profession, in addition to regulatory pressures. “Every organization that operates in a regulatory environment has got regulatory concerns,” he noted. “What the accounting and auditing profession is struggling with is how can we get more certainty around the expectations that the regulators have, around the right amount of audit evidence, the right policies and procedures to take, to make sure that we have clear communications around expectations that they have on us.”

What strategies is PwC using to bring in new clients as the economy slowly improves?

We’re focused on four things we’re trying to accomplish in the marketplace. One is making sure that we’re connecting with investors more, which is what Kayla Gillan is doing with the Investor Resource Institute. It’s understanding their needs and what they’re looking for the auditor to do even more of, and that helps make sure that we’re serving them, or the audit committee in an indirect way, the investor group. Second is to make sure that we’re doing all we can to bring a quality audit so we can gain market share as we ensure that we’re bringing a quality service to the audit committee in making that decision, continuing to do a great job with the audit committees and the companies that we’re serving today to make sure that we extend that brand. The third thing is making sure that we’ve got relevant skills that are important to the broad marketplace. That’s to the audit clients and the non-audit clients.

You think about a topic like cybersecurity. It’s an area, as a small example, or how you think about the evolution of technology and the implications it has on people’s businesses and the data used to manage the business, or the data that they’re disclosing to investors. So making sure we have relevant skill sets is important. And last but not least is making sure that we’re bringing our entire firm to bear on that marketplace. Our tax, advisory and auditing resources—when combined together—are tremendously powerful, and serving that stakeholder community really well.

What do you think about mandatory audit firm rotation? That’s one of the proposals that’s out there from the Public Company Accounting Oversight Board and they have also been considering it in Europe. Do you think there should be some kind of retendering or rotation?

Well, consistent with the disclosures I gave at the roundtable discussions that the PCAOB had, we do not believe mandatory firm rotation or mandatory firm retendering is appropriate to enhance audit quality. If anything, we actually think it runs the risk of deteriorating audit quality. So we as a firm, and myself personally, are against those changes. Having said that, there continues to be a need for changes by the auditing firms, changes by audit committees, changes by the investors to enhance audit quality overall. And here’s where we’re making significant investments in changing our methodology, changing our quality assurance processes, training our people to make sure we’re delivering audit quality for the eyes of the investors based upon the feedback we have amongst ourselves as well as the regulators give us, and also making sure that we’re engaging with the audit committees to make sure they understand what we’re doing, why we’re doing it, as they have a role to not only hire and fire us and approve permissible services, but also to understand and be a communication vehicle to the investing community in terms of what it is that we’re doing and why we’re doing it. So we’re against it, but nonetheless we’re trying to identify other things that we can do to improve audit quality because that is one of the fundamental differences. We do not want to circumvent the responsibilities and take them away from the audit committee. We think that’s a good function that in the U.S. is operating very well, when compared to other areas around the rest of the world, and secondly we do not want to take any actions that run the risk of deteriorating audit quality.

What about tax reform? That’s been talked about for many years, but it seems like now there’s a chance of something finally getting done. That happened a little with the fiscal cliff deal. Where do you think it’s going, and will the headlines about the scandals with the IRS affect the prospects for that?

I don’t think the scandals with the IRS can have an implication on the Tax Code issue. What we hear time and time again, and what we believe, is that there should be fundamental tax reform. When we look at what the U.S. system is today, compared to the rest of the world, the question is: Is the tax system that we have in place adequate for, one, the business that’s embedded within the U.S. economy, and second, is it as competitive as it needs to be when comparing it to the global economies that are out there? So we do believe there is a need for tax reform. It’s clear that in the conversations we have with the business community, with academics and with politicians, there’s a need to do that. The question on the table is not necessarily do you need to do it. The question is when and how, and if you are going to make changes, what exactly would it look like? As a result, I can’t predict whether we will get it anytime soon. There is so much political rhetoric back and forth that I do question whether it can get there, but we believe that there should be an aggressive push to try to get there and get that tax reform in place.

What kinds of diversification efforts is the firm pursuing and what do you think of the accounting profession’s diversity in general? There has been a lot of discussion about the need to get more minorities and women into leadership positions in accounting, and about workplace flexibility issues. Where do you come down on that?

I personally, as well as PwC, am a great supporter of the business case for diversity. You need to have more diversification of your people to have diversity of thought and to be able to solve for whatever challenge you the organization, or for that matter our stakeholders, are dealing with. We’ve been fortunate enough that we’ve put a series of actions in place over the last few years that have allowed us to be recognized for what we’re doing in the area of diversity. We’ve had positive recognition by organizations like Diversity Inc., where last year we were rated number 1. This year, we’re rated number 2. In the last three years, we’ve been 3, 1 and 2. There’s a recognition of the things that we’ve been doing, and those things go to the programs we’ve put in place to support diversity. It goes to the culture that we’ve created for purposes of sponsorship of women and minorities to be successful. It goes to creating a flexible work environment so that people can manage their careers in many different ways: if they want to leave for a little while, in the case of women who have kids and come back, in terms of onboarding or offboarding in the organization.

Then we’ve got to create role models and be role models ourselves. A third of my leadership team today is females. We’ve made changes to the leadership team, not only in our leadership positions inside the firm, but also in the companies we serve, where the lead partner—audit partner or client service partner—are women as well. So we’re doing a lot of things in that area that challenges how individuals can do their part and how organizations can do their part, and we at PwC believe that it’s really important for the organizations to create that support environment to make sure that we’re as diversified as we possibly can be for all the right reasons.

I understand you have an event coming up with Sheryl Sandberg at Facebook?

Sheryl Sandberg, once she came out with her book, “Lean In,” I ended up doing a blog. Where Sheryl’s book was focusing primarily on the individuals and how they can lean in to opportunities and decide what they want to do more aggressively, the blog we put out there was that while that is very important, what you also need is the organizations to lean in. They’ve got to be the support for, in this case women, to be able to lean in to those opportunities, and we should be there to support them. As a result, as I said earlier, three or four things are extremely important to make it successful so that business—not just the individual but the business itself—is leaning in with those individuals to make sure that they’re enabled for success. So we’ve written a blog on it. We’ve got an upcoming event with her where we’ll do a Q&A session and she continues to reference us in a positive way on her book tour in terms of the things that we’re doing here at PwC and to try to recognize what the business community is doing for those that get it.

What are your plans for the firm over the next 12 months? Can we expect to see any changes at the firm, or major deals or any acquisitions?

I can’t comment on any specific acquisitions, but the reality is that the firm is focused on a few primary issues. It’s focused on ensuring that we are recruiting, developing and deploying the best talent because we need to have that best talent to serve that marketplace and the broader stakeholder really well. We will continue to acquire talent, new and different skill sets. That may come from acquisitions. That may come from a lot of direct hiring on the outside. But ensuring that we’ve got the relevant skill sets and ensuring that PwC has a diversification of skill sets, and diversity itself is extremely important, in one bucket. Second, it’s important to make sure that we’re doing all we can to understand the stakeholder needs and serve them well. That’s why I go back to the investor needs that we’re spending a lot of time and energy with the Investor Institute, as well as making sure that we’re very carefully listening to the companies that we serve in the non-audit space as well as the audit space to make sure that we’re doing our jobs. And last but not least is obviously trying to think long and hard about what it is that we need to do, not in the next 12 months, but over the next few years to make sure that we are as relevant as possible. And that means talking to the regulatory bodies on a worldwide basis. It means deploying resources around the world to ensure a consistent look and feel of PwC in the eyes of those stakeholders and to make sure that we’ve got the right infrastructure in bringing in technology to create that environment that our people want to be part of.

You talk with a lot of CEOs around the world. What’s your view of the way the economy has been going?

I think the economy today in the U.S. continues to move with cautious optimism when you look at the underlying fundamentals, and while its growth rate is not high it at least is moving in a positive direction, albeit at a lower slope. It is fragile and subject to a lot of volatility, either because of the concern around the stock market as to whether it’s peaking, concern about the support that the Fed will be providing to the economy, and liquidity concerns about Europe, etc. But the underlying fundamentals are strong in the U.S., and on a relative basis compared to the rest of the globe we are in very good shape.

Having said that, you’ve got a lot of uncertainty and a lot of inconsistency around the world when you look at the global economy, and the challenge that CEOs have right now is how can they best deploy their capital with the long-term mindset to create competitive advantage for themselves? What we found in our CEO survey was that the CEOs generally were not necessarily optimistic, but definitely less pessimistic, particularly in Europe, as things at least are not getting any worse, but will be a long time forthcoming until they get any better. But the U.S. CEOs are focused on a few things. They’re focused on customer experience. In an environment where the economy is not necessarily growing at a rapid pace, what you’re interested in is market share. So spending time thinking about customer experience is really important. They are not necessarily going to bank on large M&A activity, but there will be some small, focused M&A activity. They will focus on cost and making sure that they’ve got the right productivity within their factories and their service organizations and the like. And they are very focused on talent. For the first time ever, we saw that talent—or the lack of talent—is actually getting in the way of achieving their strategic objectives, and that’s from a worldwide perspective, to make sure that they’ve got the right talent and skill sets in the organizations. As I said earlier, we at PwC are focused on those same things because they’re important to us as well, as we think about our own business, but also how we serve those businesses outside of us.

What do you think of the employment picture? They just came out with the unemployment report today.

While your volumes continue to increase, pricing pressure is actually continuing, such that you’re in a market environment where you can only compete on service or price today. When you layer that with the productivity that the corporates have gained over the last few years for leveraging technology differently, they’re able today to increase volume without significantly increasing headcount. As a result, you may see volumes continuing to go up, but revenues may be flat or up slightly, but not a lot. When you look at, for example, the earnings reports over the last quarter, clearly the bottom lines are getting better, but the revenue projections are not as strong as you would hope. That’s again because you have got pricing pressure that’s impacting organizations. So when you combine the fact that pricing is not going to be there with the productivity, I don’t think we will see a large-scale change in the unemployment rates today. As a result, you will be in this sevenish percent range for a while. It may trend a little bit better, and each month we see some statistics that are trending, but it’s not going to be a wholesale change anytime soon.

What do you think are the main issues facing the accounting profession today? A lot of our readers are in small and midsize practices. What kinds of things do you think are top of mind now for accountants?

The things that are top of mind right now are: A. Can I get enough talent and the right talent to serve the market? B. The pricing pressure that particularly the audit business is under. C. How do we continue to manage for enhanced quality and do so such that we can manage to enhance quality, which each of us also has to do, but also manage the expectation gap of what investors want? And how do you do so on a global basis? Because the smallest companies today are going global, when you look at their supply chain, when you look at their infrastructure, when you look at their sales capabilities over the Internet on a global-scale basis. Each of the network firms are trying to ensure that they’ve got that consistency around quality as well, but the pricing pressure is tremendous. And then the last piece is the mandatory firm rotation and retendering issues that are concerning in terms of how do you manage through that at a time when pricing pressure is significant and will continue to be significantly diluted at this point in time.

Is there also a lot of regulatory pressure?

Every organization that operates in a regulatory environment has got regulatory concerns. What the accounting and auditing profession is struggling with is how can we get more certainty around the expectations that the regulators have, around the right amount of audit evidence, the right policies and procedures to take, to make sure that we have clear communications around expectations that they have on us. So I think that’s another piece. I go back to making sure you’re serving your stakeholder groups. Well, your stakeholders include the regulators as much as they do the investors.

One final question: I watched the Academy Awards, and I saw that you passed the envelope to Michelle Obama before she announced the Best Picture. What was it like to be up there in front of an audience of millions?

It was a great experience. I had not been in the White House, nor met the First Lady, prior to that. And it was a great honor to do that. As you know, PwC has done the Academy Awards for 80 years or so. And it’s one of the first times that an envelope was ever actually delivered outside of the control of our offices in L.A. where the academy actually does this. So it was great. The second thing that was really great was that, as you saw, there was a group of military that the White House had invited to join that experience. And it was military from all elements of the armed forces. So I had a great opportunity for about an hour and a half to two hours to get to know them, to mingle with them, and hear their stories. And what was unbelievably positive was the fact that some of them had connections into PwC. Brothers, friends, sisters, whatever, worked for us, or they had actually been recruited by us prior to going into the military, and they had tremendously positive experiences about PwC, which is something that I clearly would not have expected. So it was a great overall experience, fantastic meeting the First Lady, a great honor to do it, and then again the military connections were fantastic, and an honor in terms of being privileged to meet those individuals who are serving our country so well.

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