SCHRODERS has dumped PwC as its auditor after more than 50 years, replacing the firm with Big Four rival KPMG.
PwC, which held the audit since Shroders became listed, earned £2.7m for its 2011 audit work and earned a further £1.8m for audit and non-audit-related services during the year.
The fund manager stated in last year’s annual report and accounts that it would “review the credentials of other providers” for the 2013 audit, signalling the changing mood among large companies to the length of audit tenures.
The Competition Commission is currently investigating the competitiveness of the market for large company audits in response to concerns that companies had become too cosy with the firms that vet their accounts.
Research carried out last year as part of the commission’s inquiry found that FTSE 350 companies had used the same auditor for an average of 11.3 years, while 59% had not changed auditor for at least five years.
In a sign that UK plc is taking note of the toughening stance, fellow FTSE 100 constituent BG Group last year chose Ernst & Young as its new auditors, after 16 years with PwC.
James Chalmers, PwC’s UK head of assurance, said at the time that losing the BG contract was proof that the firm operates “in a fiercely competitive market where all participants win and lose audits.”
Schroders’ decision to replace PwC should not come as a surprise. The company recently replaced departing CFO Kevin Parry with PwC partner and former auditor Richard Keers.
Keers, who was PwC’s global relationship partner for Schroders from 2006 to 2010, joins Schroders in May when it will have been 26 months since he worked as the company’s auditor. ICAEW rules require a two-year cooling-off period before auditors can move to client companies.
The European Commission is soon to publish its own recommendations on how to regulate the audit market. The reforms proposed by EC internal markets commissioner Michel Barnier are ostensibly designed to improve audit quality, but will nevertheless affect competition issues.
Among the changes being debated in Europe is enforced auditor rotation. Speaking to Financial Director last year, outgoing CFO Parry, himself a former KPMG divisional managing partner, said that he was “cautious” of saying that compulsory audit rotation was a good thing.
Parry also called on the government and regulators to focus on improving audit quality rather than investigate competition issues.
“We need more skills, checking and diligence, not trying to get more entrants in the [audit] market – I don’t think that’s the main issue,” said Parry.