Defence giant BAE Systems has become the latest FTSE 100 company to change auditor following new rotation requirements, with Deloitte scheduled to take over from KPMG’s 36-year tenure as the company’s auditor for the financial year ending 31 December 2018
In an announcement to the stock exchange, BAE Systems said KPMG will remain the group's auditors for the financial year ending 31 December 2017. Deloitte’s appointment remains subject to approval by shareholders at the annual general meeting to be held in May 2018.
According to the 2016 annual report, KPMG was paid just over £9m by BAE Systems for audit services both in the UK and overseas, and together with fees for non-audit services the firm received a total of £10.24m during the year.
BAE Systems said at the time: ‘KPMG and their predecessors have been in place as the company’s auditors since 1981 without re-tender and, given the length of their current incumbency, have not been invited to tender, but are committed to ensuring a smooth transition.’
As a result, there will be a shadow audit period encompassing both the 2017 half-year and full-year audits as part of the auditor appointment process, as BAE Systems explained in the annual report that ‘one major aspect of re-tendering any external audit appointment is dealing with the potential loss of experience and expertise of the incumbent auditor and the inevitable learning curve faced by the incoming auditor.’
KPMG audit engagement partner, Ian Starkey, has been in the role since 2013 and the end of his five-year tenure, when he would otherwise rotate off the audit, will coincide with Deloitte’s appointment.
Regarding the selection of a Big Four firm, BAE Systems pointed out: ‘In coming to the shortlist, we concluded that the complexity of the group and the scale of its international business require an incoming auditor to have the global reach and experience of one of the larger firms.’
BAE Systems was formed in 1999 after the merger of British Aerospace and Marconi, following the 1986 privatisation of British Aerospace.
Under EU rules brought in to force in June 2016 under the Audit Regulation and Directives (ARD) companies are required to put their audit out to tender once every 10 years, and change their auditor at least every 20 years.
Pat Sweet
