PwC's Darkest Week

PwC's Darkest Week

Badr Berrada 02/03/2017

The PriceWaterhouseCoopers’ Oscar mix up has dominated social media in the last couple of days, with many financial analysts claiming that Envelopegate could be a major hit to PwC's long-term reputation. The Oscars mistake casts unwanted spotlight on PwC. Not only did the firm’s Academy Award auditors accidentally mix up envelopes, causing chaos when the Best Picture Oscar was handed to the wrong film, but it is also under investigation in different audit cases.  PwC's darkest week continues. 

Oscar Blunder Worse than Any Audit Scandal 

PwC has worked with the Academy for more than 80 years and managed a transition as certain changes were made, for example, in 2009 when the Academy switched to so-called “instant runoff voting” for Best Picture. The association between the two organizations extends beyond the annual awards show, perhaps making it more difficult for the film organization to break with its long-time accountant. PwC has taken responsibility for a mistake that saw presenters Warren Beatty and Faye Dunaway incorrectly announce that “La La Land” was the best picture winner. The organization made it clear Wednesday that, at the very least, Brian Cullinan and the other partner working the show, Martha Ruiz, will not be back in 2018. AMPAS president Cheryl Boone Isaacs told the Associated Press that the relationship with PwC “remains under review.”

Cullinan, a partner in the firm, handed Beatty the wrong envelope, and he opened it to see the name of best actress winner Emma Stone, for “La La Land.” “Moonlight” was the actual best picture winner. It was later revealed that Cullinan had been tweeting backstage minutes before the envelope gaffe. But PwC’s suite of services to the Academy involves more than just counting and securing Oscar ballots. The company also oversees AMPAS’s elections, prepares its financial documents, and does its taxes. Since the Academy is a non-profit and in consideration of the tremendous promotional value from its Academy Awards role, PwC does not charge the organization its typical rate. That system asks voters to rank their selections for the award and means that second-place choices can end up impacting the final outcome. So there may be some sentiment in the Academy’s upper ranks to keep PwC's job, while instituting new procedures to prevent a repeated of Sunday’s flub. 

The End of a Long Term Relationship

There's a good chance the global accounting firm will be able to weather the Oscar mishap as well. However, The historic Oscars best picture mix-up has raised questions about the relationship between the Academy of Motion Picture Arts & Sciences and PWC. Tax files show that PwC charged the Academy $211,520 for accounting services in 2014, $125,284 in 2013, and $189,423 in 2012. It performed financial services for both the Academy foundation and its museum. Morgan Stanley analysts estimated that accounting services related to a broadcast like the Oscars would cost half a million dollars.

In return for its work on the awards show, PwC is able to use its association with the Oscars in its promotional materials. It also receives free publicity on the broadcast and red carpet coverage. That kind of exposure cuts both ways, raising the firm’s profile, but now also linking it in the minds of the public to the embarrassing Oscars gaffe. “The broader consumer audience doesn’t know them that well and now what they are known for is this silly mistake ,” said Katie Sprehe, director of corporate reputation and brand strategy at APCO Worldwide. 

FRC Investigates PwC's Audit in Different Cases  

In addition to the Oscars' blunder, the Financial Reporting Council (FRC) - industry watchdog - is looking into cases involving PwC: its audits of BHS, the collapsed department store chain; Barclays’ compliance with client asset rules from 2007 to 2011; Connaught, the failed FTSE 250 social housing maintenance company; and the RSM Tenon Group, the now-insolvent professional services firm. The auditor has also just paid about £3m in fines and costs to the FRC after admitting misconduct in its audit of Cattles, a financial services group that entered liquidation in September 2016.

PwC announced profits of £829m for 2016. Of its £3.4bn revenues, the largest portion — £1.24bn — came from assurance services. The FRC has toughened its stance on auditors in recent months, as high-profile companies' accounting malpractice cases — including Tesco, Rolls-Royce and BT Group — have raised questions over auditing practice. However, there are some good news for PwC: The accounting firm has actually been party to many worse business scandals, and in its core business of accounting, rather than counting votes, and yet PwC's reputation, until now, seems to have emerged just fine.

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Badr Berrada

Founder & CEO

Badr is the Founder & CEO of BBN Times. He is a former Junior Stockbroker at Commodity Index LTD and FX Trader assistant at Société Générale. He is a huge advocate of financial intelligence by providing a platform and a voice to anyone willing to know more about the latest trends. He holds a master's degree in Economy, Risk and Society from the London School of Economics and bachelor degree in Finance from Cass Business School.

   

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