All change in UK bank auditing industry

LONDON, March 7 Fri Mar 7, 2014 12:07pm EST

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LONDON, March 7 (Reuters) - 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 in the second half of this 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, Britain's accounting watchdog, 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, Europe's biggest bank said in August. KPMG has been HSBC's auditor since 1991.

Auditing Britain's big five banks is lucrative work.

HSBC paid $80 million in fees to KPMG last year - just over half in audit work and the rest for related and non-audit work, such as on corporate finance deals or advice on technology.

Barclays paid its auditors 45 million pounds ($75.2 million) last year and Lloyds paid out 32.5 million pounds, while RBS paid 43.2 million pounds in 2012 and Standard Chartered $18.7 million.

Standard Chartered is sticking with KPMG as its auditor after tendering last year, a spokeswoman said. KPMG has audited the Asia-focused bank for more than 25 years.

An auditor may use between 1,000 and 2,000 staff in its work on a big bank and its many subsidiaries. HSBC, for example, has operations in 75 countries.

Tendering for the work is a long process too, taking up to six months, with pitches in several countries. "The tenders are quite exhaustive. It's not a process you enter into lightly," a person at one of the auditors said.

Audit firms can face conflicts of interest due to other banking relationships, so the big four firms may not all pitch to work on the major UK banks.

Banks have reduced the amount they have paid in audit fees in the last two years and industry sources said the bidding process could reduce fees slightly, but costs were unlikely to be decisive issue when picking auditor.

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