New rules force banks to change auditors in UK

March 10, 2014 - 1:07:22 am
LONDON: Barclays is changing its auditor of the past 120 years and Lloyds and Royal Bank of Scotland could follow suit as Britain’s bank auditing landscape gets shaken up by new rules.

Banks are being forced to change their auditors more frequently to keep accountants on their toes after lenders were given a clean bill of health just before they were rescued in the 2008 financial crisis.

Britain is making listed companies put out their audit work to tender every 10 years and the European Union is forcing them to change every 20 years. The requirements are expected to come into force this year. But the complexity of big banks means the handover of roles from one auditor to another can take two years.

Barclays said this week it would tender for a new auditor next year or in 2016, ready to audit the bank from 2017 or 2018. PwC, which has audited Barclays since 1896, will not be invited to pitch.

Lloyds may change sooner. It said this week it may invite pitches year to take over its audit from 2016. The bank said it could reappoint PwC, or pick a new firm — possibly influenced by final EU rules on when it must change.

RBS said a year ago it would put its audit contract out to tender every 10 years. Deloitte has been its auditor since 2000. It has not yet released its annual report, where banks often announce changes or tenders.

Critics of the proposed rule changes say it could just see the “Big Four” accountancy firms — KPMG, PwC, Ernst & Young and Deloitte — swapping roles, and is disruptive given the complexity of auditing a major bank.

“In principle, changing auditor does mean that you will have a new set of eyes, but there will be plenty of interest in banks’ accounts whether the auditors are changed or not,” said Richard Martin, head of corporate reporting at the Association of Chartered Certified Accountants, an accounting industry body.

Last December, the Financial Reporting Council said it would start reviewing book-keeping at UK banks in the second quarter of this year to find out why lessons from the financial crisis are being applied slowly. PwC may be set to lose the Barclays account, but from 2015 it will replace KPMG as auditor for HSBC. KPMG has been HSBC’s auditor since 1991.

Auditing Britain’s big five banks is lucrative work. HSBC paid $80m in fees to KPMG last year. Barclays paid its auditors £45m last year and Lloyds paid out £32.5m, while RBS paid £43.2m in 2012 and Standard Chartered $18.7m.Reuters