HSBC, the UK’s largest bank by asset base, has put its audit contract out to tender in order to comply with the UK Financial Reporting Council’s (FRC) revised Corporate Governance Code, which stipulates that external audit contracts to be put out to tender every ten years.
The bank said it is looking to have the winner of the external audit tender in place by 2015.
KPMG has acted as HSBC’s external auditor since 1991, and according to HSBC’s annual report earned fees of £81m for audit and audit related services in 2012.
The retendering is likely to attract bids from all the other Big Four firms, however a mid-tier bid is understood to be unlikely due to the complexity of the HSBC audit.
HSBC putting its audit to tender is indicative of the changes taking place in the UK market following criticism of the corporate audit market by the FRC as well as the UK Competition Commission (CC) for lengthy audit engagements, some spanning several decades.
The recent provisional findings published by the CC regarding competition in the statutory audit market suggested the FRC’s guidance of 10 year retendering on a "comply or explain" basis does not go far enough. The CC’s findings proposed the evaluation of five to seven year retendering periods, believing this would ensure that companies assess the quality, price and innovation of their existing auditor in a structured and more frequent manner.
The CC final report and remedies are expected to be announced in the autumn.