PwC questioned over BHS ‘going concern’ audit

BHS auditor PwC has been questioned over why it described the embattled retailer as a ‘going concern’ just days before it was sold to a consortium with no retail experience for £1, during a joint business, innovation and skills and work and pensions committee hearing into the collapse of BHS.

MPs expressed their concerns as to why PwC had been prepared to sign off the troubled retailer’s accounts as a going concern, when the spectre of possible insolvency was looming and visible to both the pension scheme trustees and the company itself.

Five days after the auditor’s report was formally signed off on 6 March 2015, BHS was sold to former bankrupt and racing driver Dominic Chappell of Retail Acquisition Consortium on 11 March.

PwC partner Steve Denison said that “at the time no deal had been done, so in the event a deal didn’t happen, then there was written confirmation of financial support from Tavata [BHS shareholder group].

‘In the event the deal did happen, that financial support would fall away and so other factors came into play such as the provision of additional cash resource for trading in the future”.

Denison said there was “no material uncertainty”, given that “the existing management team was trying to turn the business around, and had some success in driving costs down and reducing cash requirements, the cash requirements were lower than the losses shown, and there was a deal which would bring extra cash from the vendor and new cash from the purchaser.

In a written reply to committee member and MP, Richard Fuller, over going concern issues, PwC said the completion of the BHS audit for the year ending 31 August 2014, whereby most of the work was done in late 2014, was brought forward to the beginning of March at the request of the company and because of the potential sale.

Anthony Gutman, joint head EMEA investment banking services at Goldman Sachs, said they flagged concerns to Paul Budge, Arcadia Group’s finance director and Sir Philip Green, over the proposals, the consortium and Chappell himself.

These included the facts that Chappell had been declared bankrupt and lacked experience in the retail industry.

Budge confessed that the company was “cautious” about the impending sale but both he and several Arcadia executives “seriously believed there was a credible business plan and seriously believed he was surrounded by credible people.”

He said the “most heavy due diligence I have seen” took place before the deal was rubber stamped and BHS’s demise was down to the turnaround plan not being delivered “quickly enough”.

The select committee will be hearing evidence from advisers – including Grant Thornton – to Retail Acquisitions Ltd (RAL) on the sale on 25 May.

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