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By Steve Slater
LONDON, March 7 (Reuters) - Barclays is changingits auditor of the past 120 years and Lloyds and RoyalBank of Scotland could follow suit as Britain's bankauditing landscape gets shaken up by new rules.
Banks are being forced to change their auditors morefrequently to keep accountants on their toes after lenders weregiven a clean bill of health just before they were rescued inthe 2008 financial crisis.
Britain is making listed companies put out their audit workto tender every 10 years and the European Union is forcing themto change every 20 years. The requirements are expected to comeinto force this year.
But the complexity of big banks means the handover of rolesfrom one auditor to another can take two years.
Barclays said this week it would tender for a new auditornext year or in 2016, ready to audit the bank from 2017 or 2018.PwC, which has audited Barclays since 1896, will not be invitedto pitch.
Lloyds may change sooner. It said this week it may invitepitches in the second half of this year to take over its auditfrom 2016. The bank said it could reappoint PwC, or pick a newfirm - possibly influenced by final EU rules on when it mustchange.
RBS said a year ago it would put its audit contract out totender every 10 years. Deloitte has been its auditor since 2000.It has not yet released its annual report, where banks oftenannounce changes or tenders.
Critics of the proposed rule changes say it could just seethe "Big Four" accountancy firms - KPMG, PwC, Ernst & Young andDeloitte - swapping roles, and is disruptive given thecomplexity of auditing a major bank.
"In principle, changing auditor does mean that you will havea new set of eyes, but there will be plenty of interest inbanks' accounts whether the auditors are changed or not," saidRichard Martin, head of corporate reporting at the Associationof Chartered Certified Accountants, an accounting industry body.
Last December, Britain's accounting watchdog, the FinancialReporting Council, said it would start reviewing book-keeping atUK banks in the second quarter of this year to find out whylessons from the financial crisis are being applied slowly..
PwC may be set to lose the Barclays account, but from 2015it will replace KPMG as auditor for HSBC, Europe'sbiggest bank said in August. KPMG has been HSBC's auditor since1991.
Auditing Britain's big five banks is lucrative work.
HSBC paid $80 million in fees to KPMG last year - just overhalf in audit work and the rest for related and non-audit work,such as on corporate finance deals or advice on technology.
Barclays paid its auditors 45 million pounds ($75.2 million)last year and Lloyds paid out 32.5 million pounds, while RBSpaid 43.2 million pounds in 2012 and Standard Chartered $18.7 million.
Standard Chartered is sticking with KPMG as its auditorafter tendering last year, a spokeswoman said. KPMG has auditedthe Asia-focused bank for more than 25 years.
An auditor may use between 1,000 and 2,000 staff in its workon a big bank and its many subsidiaries. HSBC, for example, hasoperations in 75 countries.
Tendering for the work is a long process too, taking up tosix months, with pitches in several countries. "The tenders arequite exhaustive. It's not a process you enter into lightly," aperson at one of the auditors said.
Audit firms can face conflicts of interest due to otherbanking relationships, so the big four firms may not all pitchto work on the major UK banks.
Banks have reduced the amount they have paid in audit feesin the last two years and industry sources said the biddingprocess could reduce fees slightly, but costs were unlikely tobe decisive issue when picking auditor.
