Deloitte poised to replace PwC as Lloyds' auditor amid Big Four conflict
Lloyds Banking Group are preparing to replace PwC as auditor and have supposedly asked Deloitte to step in from 2021
Lloyds is set to ask Big Four firm Deloitte to put itself forward to audit the bank from 2021, after its contract with PwC is up.
Sky News learned that Deloitte is not guaranteed the auditor role but external circumstances mean the other Big Four firms – EY and KPMG – are unlikely candidates. A formal tender process will occur over the next few months.
This tricky situation is a perfect example of why the audit sector needs reviewing. In response to scandals and complaints about its quality, the Competition and Markets Authority (CMA) and the ICAEW are meeting today to talk about the structure of Britain’s audit market.
A conference call on Friday saw the top nine firms already agree with the ICAEW and ICAS that the number of FTSE 350 businesses that these firms can audit will be capped.
Currently the Big Four audit 99 of the top 100 companies in the UK. It was therefore agreed at the CMA meeting that Big Four audits would be shared or jointly carried out with smaller accountancy firms.
The high street bank’s decision to drop PwC will end the UK’s longest auditing relationship, since the bank’s accounts were overseen by the firm since 1865.
EU rules state the bank must rotate its auditor in time for the 2021 financial year, and 2016 was PwC’s first audit of Lloyds.
Outside circumstances mean Deloitte is the only viable replacement, according to sources.
KPMG is to be avoided because of its role as the HBOS auditor, which Lloyds bought during the 2008 crisis. Even though the firm was cleared for its HBOS work by the Financial Reporting Council last year, further investigation into fraud affecting customers at the Reading branch has been called for.
EY is also an unlikely candidate because it is already auditor for RBS, the Co-operative Bank, Standard Chartered, and other major British lenders.
It is not impossible that Lloyds will choose an auditor outside the Big Four but it is unlikely. Grant Thornton is already a no-go as it removed itself from the market for tendering for major listed companies earlier this year citing that Big Four dominance is too great.