BT's audit shows there's no accounting for taste, while every little will help Tesco's tobacco suppliers P&H

 
Mark Kleinman
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BT is looking to change its auditor (Source: Getty)

Two's company, and three’s an impossible-to-find crowd. That sums up the challenge facing BT Group as it seeks to accelerate the replacement of its auditor.

The FTSE-100 telecoms company wants to ditch PricewaterhouseCoopers (PwC) and replace it with another member of the Big Four.

That instinct to disengage from the incumbent of three decades is unsurprising after the £530m accounting black hole at BT’s Italian business services unit.

If only acting on it was that simple.

Read more: BT wants to ditch PwC... But can it find a new auditor quickly enough?

BT now finds itself in the position of having to ‘cleanse’ two of the other members of the profession’s dominant quartet – EY and KPMG – to satisfy rules governing audit independence.

Deloitte, the other Big Four firm, is too entrenched in other work for the company to have any hope of taking part in the audit tender, say insiders.

The industry’s independence requirements are laudable – yet BT’s quandary also illuminates the wider problem that has long-plagued the oligopolistic dynamics of global accounting.

Read more: BT on the naughty step: Will it need to cap its dividend growth?

One solution could be to reduce the length of time it takes for non-independent firms to cleanse themselves.

Another could be to keep one of the big four auditors independent at all times, in preparation for a BT-style scenario.

That’s impractical for two reasons: first, it would mean any subsequent tender process would be a sham, because it would be clear from the outset which firm would emerge triumphant.

Read more: TalkTalk in line for "millions" from BT after Ofcom ruling

The volume of work generated by companies as large as BT also makes keeping one firm permanently ‘clean’ an unlikely prospect.

Mandatory audit tendering and rotation may have provided an overdue wake-up call in boardrooms, but BT’s challenge raises fresh questions which need to be examined by regulators and governments.

PwC, meanwhile, can console itself with the knowledge that at least its Oscars role is safe for the time being.

Every little will help P&H

Ditching a long-serving headquarters, pulling out of international markets, settling a reputation-scarring bribery probe: Dave Lewis has had some big decisions to make since taking over as Tesco chief executive in 2014 – but now it really is feet-to-the-fire time.

This week’s intervention in Tesco’s £3.7bn takeover of Booker Group by two of his biggest shareholders represents by far the most dangerous moment in Lewis’s tenure.

Read more: Here's why a big Tesco shareholder has come out against the Booker takeover

So he could do without another issue that also has the potential to undermine his commitment to the deal: the parlous state of Palmer and Harvey, a rival to Booker that is heavily reliant on Tesco’s business.

P&H, which handles all of Tesco’s UK tobacco supplies as well as broader logistics for its OneStop convenience network, has been in refinancing talks with its lenders for months.

I understand that a deal involving cigarette manufacturers Imperial Brands and Japan Tobacco International providing financial support to P&H may now be imminent.

Read more: Tesco boss: Reducing food waste is part of Booker takeover

That would be a relief for Lewis, who cannot afford one of Booker’s rivals falling over before regulators have scrutinised its takeover. He now finds himself in the strange position of wanting to prevent the collapse of a competitor to a company he is trying to acquire – but only for a year or two.

Livingbridge heavyweights

What unites OntheBeach, Fat Face and Mori? They are all companies which have been backed by Livingbridge, the mid-market private equity firm busily investing the £660m fund it raised last autumn.

Read more: Fat Face braces for weaker sterling after mixed results

Today, Livingbridge will take another step into the big league when it announces the creation of a strategic advisory board populated by some of Britain’s biggest business names: Land Securities chairman Dame Alison Carnwath; ex-trade minister Lord Livingston; Alibaba’s strategy chief Amee Chande; Jupiter Fund Management vice-chairman Edward Bonham Carter; and Dunelm chairman Andy Harrison.

That’s some line-up.

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