Financial News

  • 9 March 2014, 9:54

Curtain To Fall On Barclays' 120-Year Audit

Barclays is to end its 120-year audit relationship with PricewaterhouseCoopers (PwC) and appoint one of its main rivals in the latest shake-up at the embattled bank.

Sky News can reveal that Barclays, which faces a bruising showdown with investors at next month's annual meeting over its 2.4bn bonus pot, will launch a tendering process for its lucrative audit contract as soon as next year.

The move was disclosed in Barclays' annual report, published earlier this week, but has not previously been reported.

In the document, the bank said that its audit committee had considered an immediate review process but had decided to delay it because of "the degree of change impacting the business, including the finance function... and the additional strain that both an audit tender and a change of audit firm would involve".

Barclays had said a year ago that it would consider re-tendering the contract, which commands fees of tens of millions of pounds each year, but had not indicated that it would sever ties with PwC.

The decision not to invite PwC to re-bid for one of the longest-running audit contracts in British business comes amid a welter of UK and European Union legislation aimed at injecting fresh competition into the audit market.

Under proposals which are expected to be finalised this year, UK competition authorities will force major companies to put their audit business out to tender at least once a decade, while Brussels will make them change supplier every 20 years.

Explaining its decision, the bank said that it was more than ten years since its audit contract was last put out to tender, and that the lead audit partner at PwC will relinquish that role after this year.

It said: "The Competition Commission's transitional guidance is not yet available, but is likely to mandate a tender slightly later than this.

"In addition the European Union's proposed transitional rules would require Barclays to replace PwC within six years of the regulation coming into force.

"Weighing up all these factors, and with the committee chairman having recently spoken to a number of key investors, the committee has recommended to the board that, depending on the final rules from the Competition Commission and the European Union, a tender of the external audit should start in 2015 or 2016 with respect to the 2017 or 2018 audit and that PwC should not be invited to tender."

PwC and its predecessor firms have audited Barclays since 1896 but it will not lack for major UK banking clients, since it also picked up the prized HSBC contract last year.

It also audits Lloyds Banking Group, but faces the prospect of losing that business too, after Lloyds said in its annual report published on Wednesday that it would conduct a review later this year for the first time since 1995.

Lloyds Banking Group said: "The (audit) committee considers each year whether to put the external audit to tender.

"With the current audit partner required to rotate off the audit after the 2015 audit, the committee is considering whether to conduct a tender in the second half of 2014, with a view to appointing a new audit firm, or reappointing PwC, with effect from 1 January 2016, subject to shareholder approval at the AGM in 2015.

"A final decision will be made during the year, after consideration of the requirements of proposed EU legislation that may restrict the period for which PwC could be reappointed before a mandatory change of auditor is required."

The change at Barclays is likely to provide the biggest talking-point among City bean-counters, however.

Barclays' former finance director, Chris Lucas, who stepped down last year, was previously the PwC partner responsible for auditing the bank.

His move was cited after the banking crisis as evidence of a cosy cabal in the accountancy profession, which was criticised for failing to identify the massive black holes which emerged on the balance sheets of major banks in 2008 and 2009.

Mr Lucas was replaced by Tushar Morzaria, a former JP Morgan executive, who is said to be determined to carry out an overhaul of Barclays' finance function.

The accounting watchdog, the Financial Reporting Council, said in December that it had closed an investigation into PwC's auditing of Barclays' investment bank's handling of client money between December 2001 and December 2009.

However, Barclays remains mired in other legal and regulatory probes, including one encompassing the Serious Fraud Office, Financial Conduct Authority and US authorities over its fundraisings in 2009 which enabled it to remain out of taxpayers' hands.

PwC is not suspected of any impropriety over those capital-raisings.

The market for auditing Britain's biggest companies is fiercely contested among Deloitte, EY, KPMG and PwC, with a second tier of firms such as Grant Thornton struggling to make inroads into the market share of their bigger rivals.

Critics of the market reforms have predicted that they will simply lead to a "pass-the-parcel" of audit contracts without improving oversight or competition.

One insider said that Barclays' decision to move its audit work away from PwC was more about signalling the desire of Antony Jenkins, chief executive, to reform the bank than a commentary on the quality of PwC's work.

Mr Jenkins faces a tough few weeks ahead, with some investors considering delivering a withering verdict on Barclays' remuneration report after a slide in annual profits.

BG Group, Unilever and Vodafone are among the other FTSE-100 companies to shift their audit work since the announcement of the proposed new rules.

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