Saturday 23 September 2017

PwC's tenure as auditor to Bank of Ireland under scrutiny

Bank of Ireland’s enduring loyalty to PwC has come under scrutiny in the past. Photo: Caroline Quinn
Bank of Ireland’s enduring loyalty to PwC has come under scrutiny in the past. Photo: Caroline Quinn

Gretchen Friemann

An influential governance firm has raised concerns about PwC's 27-year long tenure as sole auditor to Bank of Ireland, arguing such lengthy contracts can erode independence and compromise quality.

The near-three-decade relationship was highlighted in the Glass Lewis report to Bank of Ireland investors ahead of the lender’s annual general meeting at the end of the month.

While the advisory giant said no shareholder action was warranted in relation to the long-standing contract, it stressed it would continue to “monitor this issue”.

Bank of Ireland’s enduring loyalty to PwC has come under scrutiny in the past.

In 2015, two partners at the accountancy firm – John McDonnell and Ronan Murphy – were forced to defend the quality of their oversight at Bank of Ireland, AIB and Bank of Scotland (Ireland) at an appearance before the Oireachtas Banking Inquiry, which was examining the reasons behind the state’s financial collapse.

Mr McDonnell, the lead audit partner at PwC on Bank of Ireland between 2010 and 2014, told the inquiry the firm applied the “prevailing” audit rules at the time, “notwithstanding one’s view of their fitness for purpose”.

In September 2015 a major review by the Chartered Accountants Regulatory Board cleared the big four accountancy firms of any blame for the failure to identify mounting losses on the banks’ balance sheets as property markets buckled in 2008.

But the banking inquiry brought into sharp focus the relationship between Bank of Ireland and PwC.

In its report Glass Lewis argued the bank’s “audit committee should be responsible for tendering the audit work at least every 10 years”

It cautioned that a “long tenure can erode the independence and effectiveness of the auditor” and noted that PwC “has served as [Bank of Ireland’s] auditor since 1990”.

Glass Lewis – which provides governance advice to about 10pc of shareholders in

FTSE-listed companies – highlighted that “no audit tender has been carried out since that time”.

At the banking inquiry Mr McDonnell said the firm would step back from its long-standing role by 2020 at the latest in order to comply with new rules introduced by the EU parliament in 2014.

Glass Lewis noted Bank of Ireland has said it intends to launch a tender process for the lucrative contract this year, although the fees paid to PwC have decreased drastically since 2008 when the firm was paid €8.1m by the bank for auditing services.

According to a 2016 report by global governance firm,

ISS, the figure had slipped to €2.7m in 2015.

Glass Lewis’ report noted the new auditor will assume oversight of the lender’s accounts for the year ending December 2018,  ahead of the EU’s deadline.

The renewed scrutiny of PwC’s association with Bank of Ireland comes amid intensifying speculation about CEO Richie Boucher’s replacement and whether his successor will be subjected to the State’s €500,000 pay-cap for bailed out banks.

Yesterday, Taoiseach Enda Kenny said the salary restriction would apply only to an internal candidate, echoing comments made earlier this week by Finance Minister Michael Noonan.

In its report Glass Lewis argued in favour of re-introducing bonuses to Bank of Ireland executives, claiming this would provide better alignment to shareholders.

The firm said it remains “concerned that executive pay is solely comprised of [a]fixed salary”.

Mr Boucher was paid €958,000 last year, including his pension.

Irish Independent

Also in Business