US banks and insurers will be forced to review auditor relationships that often stretch back decades after being caught by new European rules aimed at ending the cosy ties between companies and the “big four” accounting firms.
Goldman Sachs, Citigroup, Wells Fargo and Morgan Stanley are among the groups that will need to change their arrangements, potentially putting contracts worth hundreds of millions of dollars up for grabs.
The rules, which came into force last year, require listed companies in Europe to appoint a new auditor at least every 20 years and to tender these contracts every decade. The reforms also apply to so-called public interest entities, dragging the European arms of US banks and insurers into their scope.
US institutions that have a large presence in Europe and longstanding auditor relationships will have to choose between appointing a new accounting firm to oversee their entire business – a contract typically worth tens of millions of dollars – or selecting a second firm to audit their European business, according to several accounting experts.
Richard Sexton, global head of assurance at PwC, one of the “big four”, said US banks had 18 months to decide how to respond. “This is a big deal for the institutions and for the auditors. It is very high on their agenda,” he said.
Andy Baldwin, managing partner for Europe, the Middle East, India and Africa at EY, said: “The big wave of tenders for these banks has not started yet, but audit committees are discussing it more [to decide whether to change] the overall relationship with their audit firm or appoint a subsidiary auditor.”
Goldman Sachs has used PwC since 1926 and paid the firm $53m last year, according to data provider MSCI. The bank said it was “in the process of determining how best to address the EU rules regarding auditor rotation”.
Wells Fargo, Citigroup and Morgan Stanley, whose audit contracts collectively came to $155m last year, declined to comment. Wells has used KPMG for 86 years; Citigroup has used KPMG for 48 years; and Morgan Stanley has used Deloitte for 20 years, according to MSCI.
