Jessica Fino 13 Aug 2018 04:38pm

FRC criticises PwC's audit work at BHS

PwC has been heavily criticised for failings in its audit of BHS, which led to “incomplete, inaccurate and misleading” statements being made by the retail chain prior to its collapse

In a Financial Reporting Council (FRC) report, which is yet to be published in full, the regulator criticised the firm, saying it “should have concluded that a material uncertainty existed” regarding BHS’ ability to survive outside holding company Taveta, according to the Sunday Times.

The FRC launched a probe into PwC’s BHS audit in June 2016, after the retailer’s collapse in April that year.

Financial advisors Duff & Phelps announced at the time that the troubled retailer was to be wound down after attempts to secure a rescue deal failed, putting 11,000 jobs at risk and leaving a £571m pension deficit.

BHS was sold by its former owner, the retail magnate Sir Philip Green, to Retail Acquisitions in March 2015 for £1.

The report, which was leaked to the Sunday Times, made eight allegations against PwC and its former partner Steve Denison.

It claimed the firm carried out eight times more non-audit work than audit work for Green between 2014 and 2015 and that it failed to take into account how the sale to Chappell would affect the business.

The FRC declined to comment on the leak, adding it will publish the full report “in the public interest when all the details in Justice Nicklin’s lengthy judgement have been fully considered”.

A PwC spokesperson said, "We are sorry that our work fell well below the professional standards expected of us and that we demand of ourselves. This is unacceptable and we agreed the settlement recognising that it is important to learn the necessary lessons.”

The firm said its audit methodology was “not followed in this instance”. It emerged that Denison spent only two hours working on the BHS audit before signing off the accounts, and that he backdated his audit opinion.

Even though the FRC has not published its full report, it has already fined and reprimanded PwC and Denison.

PwC received a severe reprimand and was ordered to review and amend its policies and procedures. It was also fined £10m but the amount was reduced 35% to £6.5m.

Denison cannot perform any audit work for 15 years and was also fined £350,000.

Last week, Frank Field, chair of the Work and Pensions Committee, wrote to the FRC’s CEO Stephen Haddrill, asking when the report would be released.

The regulator was expected to publish its finding last month, after a gag attempt from Green failed in the High Court.

Green argued that “specific parts of the report” should not be published as these contained details that could cause Taveta, its directors and employees “serious and potentially irreparable harm”, but Mr Justice Nicklin ruled that the court was “not satisfied that Taveta’s case was ‘exceptional’ and so its application for an injunction was refused”.