The Financial Times in January turned a routine letter from the Financial Reporting Council (FRC) to U.K. banks into a scandal, suggesting that it was an attempt to block U.S.-based Goldman Sachs from hiring a smaller accountancy firm in the U.K. to do part of its European audit, but allowing its existing auditor, PwC, to do the rest of it.

A spokesperson at the FRC, however, told Compliance Week that no concerns have been raised with the FRC regarding Goldman Sachs and that the Financial Times was wrong to have suggested this link.

Moreover, the letter is part of the FRC’s routine correspondence with audit firms over matters it expects them to consider in the performance of their duties. It is a straightforward reminder to audit firms of their requirement to act independently when performing their audit duties on subsidiary companies and not to automatically rely on assurances given by the group auditor.

Noting that a number of U.S. headquartered banks are due to rotate their U.K. subsidiary auditor soon, the FRC also said that this would result in the group auditor in the U.S., which is not required to rotate, being different from the U.K. subsidiary auditor. Mandatory auditor rotation rules in the U.K. mean this can occur in other sectors too, not just banking.

While there may not be a scandal, there may be a problem. How exactly would that work? A group auditor and a U.K. subsidiary and/or EU subsidiary auditor? Not a single one of the Big Four would comment on the issue, perhaps indicating that it is a problem they are not looking forward to dealing with.

However, the letter, which is titled ‘Audit arrangements for U.K. banks which are part of non-EU based groups,’ provides some useful solutions. The requirements are part of EU Audit Regulation (537/2014). Planning for tenders both for banks and other industries needs to be put in place imminently, says the letter.

The letter raises concerns where a new auditor of a U.K. subsidiary bank “places substantial reliance on a group auditor for assurance,” noting that: “This could be viewed as being a rotation of auditor in form but not in substance, because the bulk of the audit work carried out to gain sufficient, appropriate evidence in support of the auditor’s report is carried out by the same auditor as carried out the work prior to the tender.” What is important in this situation, it says, is that the new auditor “is able to respond independently, comprehensively and on a timely basis to regulatory activity and oversight.” Even with this in place, there could still be concerns about the “capability, capacity or independence of the UK auditor, without careful safeguarding.” However, this is where the advice runs out. The letter simply says that auditors should have arrangements to address such a risk, without saying what those arrangements should be.

The ICAEW’s CEO Michael Izza also disagreed with the Times’ analysis of Goldman Sachs’ solution, describing it as a “pragmatic and rational response to a highly complex situation.” Commenting further, he said: “This is a complicated problem, and what has been proposed represents one possible solution that is at least worth considering. Conflating this with the separate debate going on in the U.K. around joint or shared audit is at best unhelpful and a potential distraction. So are allegations of conspiracy.”