Pharmaceutical giant GlaxoSmithKline has severed its 16-year relationship with PwC and has appointed Deloitte as its new external auditor for its £20m-plus audit after a competitive tender process which did not include the incumbent firm
In an announcement to the stock exchange, GlaxoSmithKline said current auditor PwC will continue in their role and undertake the audit of GlaxoSmithKline until the year ending 31 December 2017, subject to reappointment by shareholders at its 2017 annual general meeting.
The appointment of Deloitte will be recommended to GlaxoSmithKline's shareholders for approval at the 2018 annual general meeting, taking effect from the accounting year ending 31 December 2018.
According to its 2015 annual report, GlaxoSmithKline paid PwC a total of £27.5m for audit and audit-related services, plus £3.5m for taxation services, £1.1m for other assurance services and £400,000 for additional services, meaning PwC was paid £32.5m in total.
In the previous two years, fees for audit services were around the £20m mark. The annual report noted that the fee for audit and assurance services in 2015 includes £7.5m arising from the transaction involving the acquisition of the Swiss group Novartis and the subsequent increase in complexity of the group. Approximately half of this is expected to be recurring.
GlaxoSmithKline said the switch follows a competitive audit tender process overseen by an executive steering committee of GlaxoSmithKline's audit and risk committee chaired by Judy Lewent, the former CFO of Merck.
Lewent said: ‘I am pleased that having conducted a, thorough, open and transparent process, the audit and risk committee has concluded the audit tender. We would like to thank PwC for their significant contribution as GSK's auditor since the formation of GlaxoSmithKline in 2001 and look forward to working with Deloitte in the future.’
The annual report included this statement from the audit committee: ‘PwC has been the auditor of the company and the group since the inception of each in 2000. Their performance has been reviewed annually and audit partner rotation requirements have been observed. During this time, the directors have not sought to tender PwC’s contract.
‘As a result of the UK’s implementation of the EU’s mandatory firm rotation requirements, the company is required to replace PwC with another auditor no later than for the financial year commencing 1 January 2021.
‘In January 2015, when the committee, as usual, reviewed PwC’s performance for the previous year and recommended their reappointment for a further year, it also considered whether to initiate or defer an external audit contract tendering process. The committee agreed that given the level of change that was being experienced in the business, it was not appropriate to put the audit out to tender in 2015.
However, having reviewed the relative merits of conducting a tender and the recent changes in regulations in this area, the committee considered that it was in the best interests of shareholders to plan to undertake a tender process in the second half of 2016. It would target appointing the new auditor with effect from 1 January 2018, which would coincide with the end of the current PwC partner’s five year tenure as the group audit engagement leader.
‘If the company was to reappoint PwC from 1 January 2018, a new PwC partner would need to be appointed and PwC would still be required to rotate after the 2020 audit. Consequently, PwC will not be asked to participate in the anticipated tender exercise in the second half of 2016.’