The move by John Lewis, which also owns the supermarket chain Waitrose, echoes the actions of Sainsbury’s and Tesco which have both replaced PwC in the past six months. PwC is being investigated by the accounting watchdog, the Financial Reporting Council, for its auditing of Tesco in the wake of a £263m accounting scandal at Britain’s largest supermarket.
Sources say the decision by John Lewis to replace PwC was unrelated to the Tesco debacle and will result in KPMG taking over at the annual meeting in 2016. Sainsbury’s appointed EY as its auditor in January, after a 20-year relationship with PwC, while Tesco ended 32 years with PwC when they appointed Deloitte in May.
The auditing industry is currently subject to intense scrutiny following a wave of accounting scandals and in the wake of the banking crisis, when accounts of major banks were signed off by accountancy firms.
New rules introduced by regulators and the EU mean that companies are now required to put their audits out to tender every five years. The move is intended to bolster competition among the major players. The audits of the FTSE 100 companies are dominated by four main accountancy firms: PwC, Deloitte, KPMG and EY.
PwC is the largest of them all, running the audits of about 40 FTSE 100 companies, including the grocer WM Morrisons which recently appointed the firm to replace KPMG.
While John Lewis is a private company, its move to change its auditor follows 80 audits being put out to tender by the 350 biggest stock market-listed companies since October 2012. In the majority of cases, the auditor has been replaced.
PwC said: “The audit market is in a state of flux and highly dynamic, with competition remaining fierce. We expect that over the next five years many large companies will switch their auditors because of new rules. These changes are creating opportunities for us to work with companies in new capacities, including as auditors.”
Lady Hogg, chair of the audit and risk committee at John Lewis, said: “We thank PricewaterhouseCoopers for their strong contribution as the partnership’s auditors over many years and for this coming year. We look forward to working with KPMG for the 2016-17 financial year”.
Auditors of banks are being subjected to particular scrutiny as the Bank of England has recently been given new powers to punish banks and actuaries. If auditors and actuaries fail to provide information requested by the Bank of England, the central bank can impose sanctions in addition to those levied by the Financial Reporting Council.
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