HSBC bosses fear they will struggle to convince some of the UK’s largest accounting firms to bid for the bank’s $94m-a-year audit after initial outreach to contenders suggested a number of Big Four firms were reluctant to take on the role.
The UK’s largest lender is preparing to tender next year for the audit of its accounts from 2025, people with knowledge of the matter told the Financial Times.
HSBC has been audited since 2015 by PwC, which is eligible to bid for another 10 years in the role.
But the bank is already expecting difficulty in attracting pitches from the other Big Four accountants — Deloitte, EY and KPMG — because some candidates have expressed concerns over possible conflicts with lucrative consulting projects and the scale of resources needed to audit it, people familiar with the matter said.
The number of jurisdictions in which HSBC operated, the resources and technology required, and the risk involved were all issues in attracting auditors to bid, one of the people said.
Auditors have become wary of taking on jobs likely to result in significant fines if things go wrong. They have increased their fees and walked away from hundreds of clients they consider to be high-risk.
The tender will be closely watched as HSBC’s audit is one of the largest and most complex for a London-listed company and is likely to be worth about $1bn in fees over a decade.
“You know it’s bad when people are talking about turning down a $1bn contract,” one person said, citing the enhanced pressure on large audit firms. “That doesn’t happen in any other industry.”
HSBC’s will be one of the first audits awarded by a large UK financial institution in the second wave of mandatory once-a-decade tenders since European auditor rotation rules created upheaval in the 2010s.
Deloitte, EY and KPMG have all provided consulting services to HSBC but auditors said the bank’s decision to start its search early should leave enough time for a new firm to eliminate most conflicts with advisory work before 2025.
Rival accounting firms are also concerned that the current auditor, PwC, will be the favourite to win the contract. PwC intends to pitch, a person with knowledge of the matter said.
Ploughing time and resources into pitching was therefore potentially unattractive for rivals, said senior auditors.
“If it’s going to be a very expensive tender and they’re happy with PwC then why would we tender?” said a partner at another Big Four firm.
A new audit firm would also have to conduct a protracted and costly process of moving any corporate bank accounts and partners’ loan agreements held with HSBC to another bank to avoid possible conflicts, one of the people said.
Two Big Four partners questioned whether Barclays’ auditor KPMG could credibly bid after it was criticised by the UK accounting regulator over the “unacceptable” quality of its banking audits.
“KPMG are under a bit of pressure on their bank audits so are they going to be a viable tender?” said one of the partners.
HSBC has approached smaller challengers to the Big Four to gauge if they can audit its financial statements, said two people with knowledge of the matter.
Senior auditors at two challengers said mid-tier firms would not pitch to audit the entire HSBC group because of its size and the associated regulatory risk.
HSBC paid PwC $130m in audit and related fees last year, its annual report showed — more than the entire UK audit revenues of any challenger other than BDO and Grant Thornton.
But talking to smaller firms now would help HSBC to “get their order in first so they get the A-team” if the UK government went ahead with plans to force large listed companies to hand the audit of some subsidiaries to a challenger, one auditor said.
HSBC declined to comment other than to confirm that it will start the tender process next year. Deloitte, EY, KPMG and PwC all declined to comment.
HSBC faces struggle to attract bids from Big Four auditors
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