PwC - Annual Review 2009 Australia

Pat McKeon From Advisory’s perspective, strong organisations will do two things. They’ll balance short-term pragmatism, including a clear focus on cash, risk etc., while keeping their eye on the longer term. Markets such as these offer real opportunities, from presenting a platform for internal change to creating bargains that would usually be unaffordable.

Ian Farmer And I believe the other critical issues are staying absolutely connected to customers and engaging in more robust and rigorous scenario planning and business forecasting.

Paul Bendall Boards and CEOs need reassurance around the stability and sustainability of their business operations and relationships with employees, suppliers, customers and regulators. This is vital to remaining confident in their ability to emerge from the current market turmoil as dynamic and competitive organisations.

Paul Bendall The global financial crisis has increased the focus on corporate responsibility. Regulators, governments, employees, suppliers, analysts and shareholders are seeking greater transparency and looking for sound risk management and a holistic understanding of what is driving organisational performance. Employee reward and recognition structures must be shaped to ensure they drive sustainable business behaviours.

These emerging social and community obligations are increasing pressure for a broader-based, real-time business reporting model, extending the existing obligations of business beyond mere periodic financial reporting.

Ian Farmer I agree. If we learn anything from the current situation, it has to be that a focus on true sustainability and the obligations organisations have to the wider community is vital. This includes ensuring key players in the local and global markets have robust and sustainable business models and greater transparency around material issues. The focus of governments around the world has shifted dramatically, and there is little doubt that tighter scrutiny in the area of corporate responsibility and sustainability will be the way of the future. We are seeing this in a global trend to greater transparency and responsibility around tax risks and tax management.

Pat McKeon I also believe this kind of recessional market often drives a ‘flight to quality’ from a client and customer perspective. In this respect, clients will be able to see which companies and organisations continue their commitment to corporate responsibility initiatives even when budgets are tight. We, for example, remain committed to our corporate responsibility initiatives – they are not just important to the organisations that benefit from them; they are important to the fabric of our culture.

Ian Farmer In the area of tax, businesses across all industries are now heavily focused on freeing up cash. A back-to-basics trend to enhance cash flows and optimise refunds has clearly emerged. We are also finding the relationship between tax payers and tax authorities has become strained, and we are playing a more significant role in helping clients find certainty in tax positions.

Pat McKeon Within our Advisory business, we’ve seen our work shift to supporting clients who are suffering from reduced revenues, debt issues, cash liquidity and funding challenges. From our perspective, that means that our Corporate Advisory & Restructuring team, our Debt Advisory team and many of our consulting teams have seen a change in the shape of their work. More than ever, this is a great opportunity for us to collaborate with our clients to find sustainable solutions.

We’ve also been delighted to work with our government clients in finding solutions to the many challenges that face Australia at state and federal levels in the areas of health, water, education and transport. Our teams feel proud to be a part of building a better Australia.

Paul Bendall In the current market, I see boards and management seeking broad-based business assurance rather than a technical opinion on periodic financial statements. Organisations struggling to access and manage credit, debt and equity funding against falling asset values and consumer demand are seeking an independent and robust view to help ensure they remain viable. We are finding increased demand for risk, controls, security and forensic assurance services as an extension of our core financial statement assurance services.

More broadly, we are seeing businesses impacted by suppliers failing and a sharp reduction in the need for goods and services as demand abates in some sectors of the economy. Speed and agility in changing and responding to the new circumstances are defining success in both a positive and negative context within the current environment.

Pat McKeon Clearly there is a requirement to re-strengthen the fundamentals in both companies and government. And this brings us back to good planning, sound financial management and strong execution of business plans. There is, however, a huge responsibility to manage confidence levels such that the growing maturity level of corporate Australia doesn’t suffer. That could hold it back from participating in the growth to come in the Asia Pacific region.

Ian Farmer There is no doubt that a simplification of the Australian taxation system should be an area of ongoing focus – the Henry Review is a unique opportunity to reshape the tax system. With over 56 different business taxes currently in place, there has to be change. At the individual company level, there are also great gains to be made in simplifying processes to reduce the current cost of meeting compliance obligations.

Paul Bendall I think financial and operational risk management will also be top of the agenda for legislators and regulators. The focus will be on re-instilling confidence, protecting shareholders and investors from risky business practices, and preventing a recurrence of the current financial crisis.

Paul Bendall In the coming years, government stimulus will fund infrastructure development, igniting growth for resources and construction businesses that will be supported by the financial sector. Some organisations will find the opportunity to strengthen their core business by acquiring the peripheral operations of other companies. Others will find a way to better manage productivity and profitability, which in easier times might have been overlooked in the frenzied search for growth.

I believe the post-global financial crisis Australian business landscape will be characterised by government enjoying a stronger hand as guardian of the public interest. Business-to-business transactions and relationships will become more transparent. Businesses will rely on employees with new skills and competencies and an eye to financial security borne of community prudence rather than rampant private opportunism.

Pat McKeon The global financial crisis will also refocus Australian leadership teams back on the fundamentals of their organisations, and I think this is a broadly positive thing. Relationships will be tested, tried and either strengthened or abandoned under such conditions.

Ian Farmer It seems that while a recovery in the economy will be relatively slow, it could be unpredictable in where and how it emerges. In light of this, I think the relationships between boards and advisers will be enhanced, and a new level of consultation and rigour will emerge in decision making.

Businesses are currently being forced to review the composition of their workforces, with many now opting for more flexibility in their approach. This includes a renewed focus on moving resources to meet peaks and troughs and offering staff greater flexibility in the way that they work. This has real benefits for both employers and employees, and may well set the tone for many organisations moving forward.

Ian Farmer We are seeing acceleration in the globalisation of tax policy and tax authority networks. Our global networks are critical to our ability to help clients deal with this trend. We are committed to providing clients with a seamless and consistent service, bringing the very best of our global expertise wherever it is needed. While this is a key benefit for our clients, it also provides our people with a worldwide network of colleagues to call upon, and the opportunity to work anywhere in the world.

Pat McKeon In the market I’m seeing a real threat to growth through globalisation, as some organisations begin to bunker down and focus more on their own cost base, customers and opportunities rather than more extensive areas of collaboration. From our perspective, we want to make sure that our clients not only have access to the intellectual property of our Australian firm, but also of other PwC firms around the world. As the Australian Firm Executive, it’s crucial that we work even harder at collaborating with our counterparts in Asia, Europe and the Americas.

Paul Bendall There are a number of fundamental societal shifts – proliferation of new media technologies, falling trade barriers; inbound migration and importation of foreign regulation through cross-border operations – that are all contributing to a structural realignment in the Australian economy. These shifts demand that our firm is flexible and agile.

We are developing new capabilities to serve the offshore operations of Australian businesses. New areas of focus include offshore supply chain assurance; global operational and financial risk assurance; governance processes; cross-border data integrity, transfer and security assurance; offshore regulatory compliance assurance; global treasury assurance; and support for new offshore market entry strategies.

Pat McKeon The key for us is to fully understand the strategy of each organisation as well as the execution focus of the CEO and his or her executive team. Once we have a grasp of that, our strategy, deals, consulting economics and transformation teams can, in combination, provide a single solution point for the client. This is unparalleled in the Australian professional services environment.

Paul Bendall As we help secure a sustainable future for our Australian community, we anticipate having robust conversations; airing alternative views; and challenging management thinking, governance, processes and internal controls.

Ian Farmer This all supports our broader focus on building and maintaining quality client relationships. The ability of our diverse firm to work alongside clients, to provide valuable support and insight as they navigate an uncertain future, is essential. No one can predict for certain what tomorrow will look like, but we can work together to tackle the issues as they emerge, and to help shape the way forward.