LONDON – On Wednesday, August 15, 2018, A regulator said,“PwC should have flagged significant doubts over the future of BHS in an audit that was completed just days before the loss-making UK retailer was sold for a token one pound in 2015, ahead of its collapse a year later”.
After pressure from MPs, the FRC published documents on Wednesday detailing the eight allegations of misconduct that prompted the penalties. The Financial Reporting Council (FRC) watchdog fined PwC in June a record 6.5 million pounds, and former partner Stephen Denison 325,000 pounds. Denison was also banned from auditing for 15 years. BHS had 163 stores and employed 11,000 people when it collapsed in 2016, triggering a political firestorm.
PwC said, on Wednesday it was sorry its work fell well below the professional standards expected. “This is unacceptable and we agreed the settlement recognizing that it is important to learn the necessary lessons,” it said in a statement.
MPs have said,they may formally request higher fines once the FRC published the details of its probe into PwC. They called the FRC “toothless” over its handling of the BHS audit, and the watchdog’s powers are being independently reviewed’.
“There were several events or conditions that should have appeared to the respondents (PwC and Denison) to cast significant doubt over BHS’s ability to continue as a going concern and therefore to require further investigation,” the FRC said.
BHS had significant net liabilities, had had to make provision for loss-making stores, and had very significant deficits in its defined-benefit pension schemes.
In a letter dated just before Denison signed off on the accounts, Taveta qualified its support for BHS, saying it would continue as long as it was part of the group.
Taveta had also submitted a draft application to restructure its pension schemes, an indicator of potential insolvency, though this was “paused” in September 2014.
“The respondents gave no consideration to how these matters may have impacted BHS’ ability to continue as a going concern,” the FRC said.
“They failed to gather any audit evidence on which to conclude that the going concern assumption was appropriate. Based on the audit evidence obtained, they should have concluded that a material uncertainty existed about BHS Group and BHS’s ability to continue as going concerns.”
The financial statements were misleading as they said a going concern assumption was appropriate because Taveta had given an unqualified undertaking to support BHS, the FRC said.