CPA Australia paid big four accounting firm PwC almost $600,000 to produce a report that concluded there was not enough demand for the accounting body’s financial planning arm CPA Australia Advice to ensure its financial viability.
The accounting body has used the PwC report as the justification for its decision last week to shut down the loss-making venture. At the end of 2017, CPA Australia Advice had just 37 planners paying to operate under its licence. That year they generated $217,000 in revenue and lost $3.8 million.
The cost of PwC’s report adds to the total of $13.2 million in cumulative losses that CPA Australia Advice has sustained between the service’s launch in 2015 and June 30 of 2018.
The final bill for CPA members will likely be higher with a CPA spokeswoman telling The Australian Financial Review “further costs will be incurred as the business is wound down”.
Members have been calling for the operation to be closed since the extent of losses at the venture were first reported by The Australian Financial Review last June. At that time it had 25 financial planners signed up to the service.
The subsidiary also caused CPAs to briefly lose their legal protection from malpractice lawsuits last year, when government regulator the Professional Standards Councils refused CPA’s application for a new professional standards scheme over concerns about the conflict of interest.
The loss-making venture became one of the major issues, along with concern over indiscriminate spending and exorbitant salaries, that led to a member uprising at the accounting body and ultimately saw CEO Alex Malley sacked and the entire board resign.
Covering letter only
CPA would only release the covering letter of the PwC report, which provided a brief outline of the firm’s conclusions.
“Demand from members for the CPA Australia Advice offering in the form established was insufficient to ensure financial viability and we have found no evidence to suggest that future demand for the offering in its current form will increase to a financially viable level. As such, we recommend CPA consider exiting CPA Australia Advice in its current form,” PwC partner Anthony James wrote in the letter.
A CPA spokeswoman said the body would not provide members with a copy of the full report, done by PwC’s strategy arm Strategy&, as it contained “commercially sensitive information”. The body said the report was commissioned on the recommendation of an earlier report into the body by former auditor-general Ian McPhee.
One of the key rebel CPA members, Brett Stevenson, said it should have been obvious to CPA last year that the advice arm was not viable.
“I think the review by PwC into CPA Australia Advice pretty much completes the professional whitewash done of all the wrongs exposed at CPA Australia,” Mr Stevenson said.
No details, no names
He said the PwC covering letter failed to mention the amount lost so far or the cost of closing down the operation or who should be held responsible for the failed operation.
“There are also no details of the actual financial budgets that allowed this to go ahead. They must have been fairyland stuff. After all the matters exposed at CPA Australia and this subsidiary, no-one has been held accountable, and the new board are pressing on with virtually absolute power with an even more disinterested and apathetic membership,” Mr Stevenson said.
Another member, Greg Angelo, has also demanded CPA release “the financial modelling plans undertaken” to set up the advice operation.
Losses a concern to all
The CPA chairman and president Peter Wilson said the board needed the report to make a decision about the financial planning arm.
“The ongoing losses at CPA Australia Advice have been a concern to everyone involved in our organisation,” he said.
“Part of the responsibility of a Board is to make decisions based on evidence. We needed to investigate whether there was any prospect of getting a return on the investment already made.
“Once it was confirmed that there was no prospect of financial viability we made the decision to exit the business.
“We’ve moved as quickly as possible to let authorised representatives know so that they could start planning a transition and we are committed to supporting them through that process.”
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