PwC wins tender to replace rival KPMG at Cineworld

28 June 2019 3 min. read
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Cineworld has selected PwC to replace KPMG as external auditor following a tender process launched to keep the company “in accordance with good corporate governance policy on audit rotation.” The move comes shortly after the Big Four collectively lost out of the auditing role of Goldman Sachs UK for the first time in the firm’s history.

The largest auditing and consulting firms of the UK have endured intense scrutiny in the last 24 months. Since the collapse of outsourcing giant Carillion, talk of ‘breaking up’ the Big Four has been steadily reaching a crescendo, and earlier in the spring, a Parliamentary report even endorsed the separation of the Big Four’s accounting and advisory wings. The quartet have courted such negative PR in recent months, that even long term clients have started to look elsewhere for auditors, with Mazars recently winning a lucrative contract with Goldman Sachs UK as a result.

The Goldman Sachs case has proven to be something of a watershed moment, as it saw Mazars become the first auditor in the multinational investment bank and financial services company’s UK history from outside the Big Four. However, it remains an exceptional case, rather than the new norm, and most firms still seem comfortable trading one of the gang of four for another. Late 2018 saw SCISYS contract EY after KPMG resigned its accounting role, while Deloitte more recently secured a new contract as the external auditor of construction industry manufacturer CRH, replacing rival EY as of 2020.

PwC wins tender to replace rival KPMG

Now, a statement to the London Stock Exchange has seen Cineworld appoint PwC as auditor as of June 2019.  Cineworld Group is the world’s second largest cinema chain, with 9,538 screens across 793 sites in the US, the UK, Ireland, Poland, Romania, Israel, Hungary, the Czech Republic, Bulgaria and Slovakia. The news sees PwC replace KPMG, which had served as its UK auditor since 2004.

The Cineworld Audit Committee had previously conducted a tender process in 2016, after which it recommended that KPMG be reappointed as external auditors. Following this, and due to mandatory audit rotation rules, the next audit tender was required to take place in 2026. However, this year the company stated that “in accordance with good corporate governance policy on audit rotation”, it would conduct another tender process for the statutory audit contract.

At the same time as Cineworld announced the winning bid, KPMG published a letter of resignation sent to the board of Cineworld with an accompanying “statement of reasons.” The document states KPMG ceased its role as it declined to participate in the competitive tender process, as it “did not consider that it was likely that [KPMG] would be able to agree acceptable commercial terms”. KPMG had been paid £1.7 million in audit fees for its group audit for the year ended December 2018. It was paid £1.3 million for other advisory services for the year ended December 2017.

While the move will be seen by some as strengthening Cineworld’s auditing, however, others will suggest it opens it up to conflicts of interest. PwC was previously an external advisor to the Remuneration Committee of Cineworld in September 2017, for which it was been paid £84,200 in non-audit fees. It has also provided internal audit support to the Risk and Assurance team before that.