PwC sees off Deloitte to retain HSBC audit worth up to $1bn

PwC has retained the most valuable audit contract on the London Stock Exchange after overcoming a challenge from Deloitte to sign off the accounts of HSBC until 2034.

HSBC announced on Tuesday that it had decided to reappoint PwC following a tender process that was required because the Big Four firm will have served for 10 years by the time it signs the 2024 accounts.

PwC and Deloitte were the final two firms in HSBC’s marathon tendering process that effectively began when the bank informally contacted accounting firms in 2021, according to people familiar with the process.

The HSBC audit is by a distance the most expensive on the London Stock Exchange ahead of those at Barclays and Shell.

The bank paid PwC $130mn for audit and related assurance services in each of 2020 and 2021, meaning the appointment could be worth about $1.3bn over the next decade.

PwC took over from KPMG in 2015 and was eligible to serve until 2034 subject to a competitive tender at the 10-year mark. Under rules introduced in 2016, large UK-listed companies are required to change auditor at least every 20 years and to run a competitive tender once a decade.

HSBC ran the tender early to give time to challengers to PwC to finish up consulting projects and eliminate conflicts of interest were they to win the contract to audit its accounts from 2025.

PwC’s reappointment adds to the mixed approach taken so far by FTSE 100 companies in deciding whether to stick with their existing auditor for a second decade or risk disruption by appointing a competitor.

Aviva decided in 2021 that it would drop PwC in favour of EY. The London Stock Exchange Group and NatWest both opted last year to ditch EY, choosing Deloitte and PwC respectively. However, Unilever decided to stand by incumbent auditor KPMG.

The proportion of incumbents winning a second 10-year term is expected to be affected by the outcomes of the tenders run by the first companies to reach that mark. “If you see eight out of the first 10 extended, then that will become the norm,” said the audit committee chair of one of the largest FTSE 100 companies prior to HSBC’s announcement.

Despite the high fees, HSBC bosses had feared the audit would generate limited interest from PwC’s Big Four competitors Deloitte, EY and KPMG because of the scale of the task and the bar on carrying out lucrative consulting work for audit clients.

“A lot of firms weren’t jumping at the tender,” said one of the people familiar with the matter.

The size, geographic reach and regulatory complexity of HSBC make its audits one of the most difficult on the London Stock Exchange. About 100 PwC partners and 2,000 staff in total work on the HSBC audit globally, said a person familiar with the matter.

Simply pitching for the work was expected to cost up to $5mn per firm, said a senior Big Four partner.

PwC’s reappointment will be subject to annual HSBC shareholder approval. The bank said it would give details of the tender in its annual report.

PwC and Deloitte declined to comment.