PwC and its audit partner Steve Denison admitted misconduct to the Financial Reporting Council (FRC).
PwC received a severe reprimand and was ordered to review and amend its policies and procedures.
The firm was fined £10m but the amount was reduced 35% to £6.5m for early settlement, which has been approved by an independent tribunal.
Denison cannot perform any audit work for 15 years.
He was also fined £350,000 and agreed to remove his name from the register of statutory auditors and not to apply to have his name re-entered on the register for 15 years.
The fines and the length of Denison's undertaking not to perform audit work are the largest in the history of the FRC.
Denison worked at PwC for more than 32 years and stepped down earlier this month. He is currently the chair of the Yorkshire County Cricket Club.
The FRC launched its probe into PwC’s BHS audit in June 2016, after the retailer’s collapse in April that year.
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.
PwC said in a statement, “We recognise and accept there were serious shortcomings with this audit work. We are sorry that our work fell well below the professional standards expected of us and that we demand of ourselves.
“We have agreed this settlement, recognising that it is important to learn the necessary lessons. At its core this is not a failure in our audit methodology, the methodology simply was not followed. As a result of our internal reviews we took swift action to enhance our monitoring procedures. We have agreed with the FRC to extend these further for an additional period.”
The Big Four firm said it had fully cooperated with the FRC throughout the investigation, including making a “very early” admission which awarded them a 35% discount in its initial £10m fine.