Untangling KPMG’s excruciating closeness to Westpac
Myriam RobinWestpac’s decision last week to ditch its (very) longstanding auditors at PwC in favour of appointing new ones from rival KPMG continues to reverberate through Barangaroo’s International Towers complex.
That is, of course, because both Westpac and KPMG have large offices there. And because their myriad entanglements make the implementation of this kind of audit contract a rather tricky manoeuvre.
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This newspaper has previously noted the preponderance of ex-KPMG operatives within Westpac, including audit committee chair Peter Nash, CFO Michael Rowland and director Michael Ullmer (longstanding ex-chairmanLindsay Maxsted was another, though he stepped down in 2020). At the pointy end of financial services, this is perhaps to be expected.
But Westpac is also KPMG’s banker, and a major consulting client of the big four firm.
Auditors are meant to be independent of the companies whose accounts they scrutinise, so this just won’t do. Both arrangements will have to be substantially and quickly unwound before KPMG can begin checking Westpac’s accounts.
On the former, and as part of this independence process, KPMG has until July 1 to find another banker. And it now has little hope of replacing the tens of millions in consulting work a year it has and continues to conduct for the bank, much of it risk, forensic and remediation work conducted under the auspices of partner and financial services consulting lead Warren Dunn.
Such is the extent of KPMG’s Westpac billings that no one we spoke to was even sure KPMG would end up ahead from winning the audit. Undeniable is that some parts of the organisation will benefit. Others have cause to be somewhat aggrieved.
Everyone wins from the Westpac audit because it’s prestigious and highly respected, which can lead to further work. And it pays well enough: PwC billed $26 million to audit Westpac in FY23, and a further $8 million in other fees.
Assuming KPMG is paid roughly similarly, rivals estimate the audit will occupy at least five partners aided by around 100 staff, with another dozen or so senior specialists on call as necessary. This is, also, recurring work, reliably billed every year.
That’s in contrast to the consulting work, which, while spectacularly lucrative is also lumpy. In any case, it’s all history now. KPMG said it “doesn’t comment on client work” but was looking forward to conducting “a high-quality audit for Westpac”.
On a leadership angle, this is viewed as a welcome win for CEO Andrew Yates, a veteran auditor currently under pressure for having infuriated a Senate inquiry, and facing the more general difficulties caused by a downturn in the consulting market. It comes as most expect his tenure to be drawing to a close.
His replacement will be chosen by the board. Some look to Eileen Hoggett, presently chief operating officer, as the heir apparent when he steps down. But others ponder Paul Howes, the union heavyweight turned KPMG power player. He heads up the powerful consulting division, and if anything is adept at counting the numbers.
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Myriam Robin is Rear Window editor based in the Melbourne newsroom. A Rear Window columnist since 2017, she previously reported on financial markets and media. Connect with Myriam on Twitter. Email Myriam at myriam.robin@afr.com
