One of Britain's top investors dealt a stinging rebuke to PwC at Vodafone's annual meeting on Friday, accusing the accounting firm of failing to eliminate a conflict of interest.
Standard Life, a top 25 shareholder in Vodafone, made its unusual public intervention after pressing PwC for months to eradicate the conflict, which arose after the accounting firm, which has audited Vodafone since 2014, began acting as an administrator to collapsed retailer Phones4U.
Vodafone, O2 and EE have been accused by some creditors, including Phones4U founder John Caudwell, of colluding to pull their contracts from the retailer and triggering its September 2014 bankruptcy.
Last year, PwC warned Vodafone’s board that the company faced possible legal action from Phones4U.
"The appointment of PwC as administrators to [Phones4U] after their appointment as auditors of Vodafone created a conflict, regardless of whether litigation against Vodafone is pursued," Deborah Gilshan, governance director at Standard Life, said at the meeting. "We understand that PwC considers no actual conflict exists to their position as Vodafone's auditors. We disagree."
Standard Life, which oversees £278 billion (€311 billion) of assets, voted against PwC’s reappointment at Vodafone’s auditor, as did the holders of nearly 12 per cent of the telecoms group’s shares.
A spokesperson for PwC said: “We adhere strictly to all regulatory professional and ethical standards. As with all administrations, appropriate action is taken to deal with conflicts.”
Line of fire
PwC has already found itself in the line of fire in the British telecoms sector this year after it was let go as BT's auditor following an accounting scandal. The problem's at BT's Italian business were brought to the company's attention by a whistleblower and fleshed out by a subsequent investigation by KPMG.
Standard Life is a long-standing shareholder in Vodafone, and owns 465m shares in the company.
“Confidence in the accounting profession has been dented by scandals, many of which are linked to the global financial crisis. Such an environment requires the highest standards of probity to rebuild trust,” Ms Gilshan said.
“We believe [PwC], and the wider accounting profession, need to better balance their commercial interests with the ethical standards applied to conflicts, perceived or real,” she added.
PwC's appointment as Phones4U's administrator prompted Vodafone to seek advice from the UK accounting watchdog on the potential conflict. The Financial Reporting Council said PwC had not breached its ethical audit standard.
Vodafone’s audit and risk committee has asked PwC to establish “stringent safeguards” to ensure the team working on the telecom company’s accounts are physically separated from the team working with Phones4U.
The FTSE 100 company also asked PwC to ensure any potentially confidential material is stored separately, with highly restricted access. Vodafone does not plan to put its audit contract out to tender, according to a spokesperson for the company.
Copyright The Financial Times Limited 2017
