Vodafone poised to sack PwC over Phones 4U conflict

Vodafone is poised to start a scramble for one of corporate Britain's most lucrative audit contracts as it prepares to ditch PricewaterhouseCoopers (PwC) amid an ongoing legal row over the collapse of Phones 4U, the high street retailer.

Sky News has learnt that Vodafone, which has a market value of nearly £43bn, is expected to decide within weeks that it will launch a process to appoint a new auditor.

The move, which would put the other big four accountancy firms on notice, could provide an early test-case for measures unveiled this week to bolster competition across the sector.

The Competition and Markets Authority (CMA) has recommended that the profession be overhauled through the creation of a system of joint audits, which would involve all FTSE-350 companies being obliged to appoint a second auditor from outside the industry's dominant quartet.

Vodafone has been considering parting company with PwC - which has overseen the mobile phone giant's books since 2014 - for more than a year.

The issue has arisen because of the persistent threat of litigation against Vodafone from PwC in its role as administrator to Phones 4U, which collapsed four years ago after the mobile network and some of its rivals cancelled their distribution contracts with the retailer.

Last month, The Daily Telegraph reported that PwC had called in an insolvency expert to help decide whether to press the button on damages claims against the mobile networks which could run to hundreds of millions of pounds.

Vodafone asked Deloitte, EY and KPMG last year to free themselves from potential conflicts in non-audit work that would prevent them taking on the audit role.

According to Vodafone's latest annual report, the company paid PwC €21m in audit fees during the 2018 financial year, as well as €5m of non-audit fees.

Sources said on Tuesday that Vodafone had yet to make a final decision to tender its audit contract but that it was now "overwhelmingly likely".

The situation surrounding Vodafone's accounts underlines the difficulties faced by the big four firms in managing conflicts.

Rachel Reeves, the Labour MP who chairs the Business, Energy and Industrial Strategy select committee, said that such conflicts had been shown to "jeopardise audit quality".

A spate of reviews into the profession was triggered by political anger over the role of accountants in the collapse of companies such as BHS and Carillion (Frankfurt: 924047 - news) .

However, the CMA proposals for joint audits, ring-fencing within the big four firms and a possible market share cap met with scepticism from executives across the spectrum.

One said they were "unworkable".

In the case of Vodafone, at least one of the remaining trio of firms is thought not to be in a position where it could take on the audit contract - meaning that the race to replace PwC could involve just two firms.

Vodafone's multinational nature would make it impractical for a player outside the big four to handle the work.

Its prospective tender process may also be complicated by the fact that David Nish, the non-executive director who chairs its audit committee, is a former Price Waterhouse partner.

The issue of PwC's independence has been raised by investors as a cause for alarm, with Institutional Shareholder Services, an adviser to fund managers on voting decisions, ‎warning last year that it raised "obvious concerns around conflicts of interest and auditor independence".

ISS (LSE: 0QRS.L - news) added, however: "To its credit, the [Vodafone] audit committee has been proactive in addressing the issue head-on, consulting both with regulators and major shareholders when the issue came to light."

Vodafone has insisted that robust steps are in place to ensure PwC's independence, including ensuring the physical separation between the audit team responsible for overseeing the company's accounts and the Phones 4U administration team.

Confidential material was being stored separately, with highly restricted access, it said last year.

If it does lose the Vodafone audit role, it would be a blow to PwC, which replaced Deloitte in 2014.

PwC has been hit this year by a number of regulatory headaches, including the imposition of a record fine on the firm over its auditing of BHS, which collapsed in 2016 with the loss of 11,000 jobs.

Vodafone and PwC declined to comment.