FRC strikes out at PwC’s BHS audit quality following leaked report

FRC strikes out at PwC's BHS audit quality following leaked report

The Financial Reporting Council has called PwC's audits of the collapsed BHS "inaccurate, and misleading"

The Financial Reporting Council (FRC) has slammed Big Four accounting firm PwC following a leaked report on BHS audits.

The accounting watchdog accused PwC of making “incomplete, inaccurate, and misleading” statements about BHS’s financial situation just before it was sold for £1.

According to the leaked report, which was seen by the Sunday Times, the FRC said PwC should have pointed out that uncertainty existed for the future of BHS immediately after Sir Phillip Green sold it to Dominic Chappell in 2015.

Allegedly the report accuses PwC of carrying out eight times more non-audit work than audit work for Green in 2014-15 and failing to consider the impact of the sale to the bankrupt Chappell, even though its tax team declared it more or less “bust” at the time.

British Home Stores collapsed 13 months after Green sold it, leaving 11,000 people without jobs. It also left behind a £571 million pensions black hole which affected 22,000 people, both current and past employees.

News of PwC’s mistakes via this report comes amid intense pressure on the FRC from Westminster for the watchdog to publish its findings for all to see. Last week the Department of Work and Pensions committee chairman, Frank Field MP, wrote to the FRC demanding explanations for why it had not been published.

Justice Nicklin, High Court Judge, explained there were possible defamatory issues with publishing the full report. It may have breached its “duty of fairness” by not giving Taveta enough opportunity to reply to supposed criticisms.

The FRC then proceeded to seek legal advice, which has delayed the report’s publication.

Only last month the Big Four firm was slapped with a £6.5m fine over the BHS audits, whereby it gave the failed retailer a clean bill of health for year end 30 August 2014. The figure was reduced from an overwhelming £10m following PwC’s agreement to an early settlement.

A PwC spokesman said the firm were “sorry that our work fell below the professional standards expected of us and that we demand of ourselves”.

The spokesman added that “whilst the failings did not contribute to the collapse of BHS over one year later, they were serious”.

Further details about the report suggest the FRC will criticise directors of Taveta Investments, the holding company for the Arcadia Group, which BHS was part of for fifteen years.

Speculation comes from the fact that last month Taveta made a High Court challenge which wanted to restrict the publication of the whole report.

The collapse of BHS also sparked investigations by the Serious Fraud Office. Chief Executive of the Insolvency Service, Sarah Albon, also wrote to the FRC arguing that the new evidence from the BHS report means the service should reopen its investigation into the directors of the former high street chain.

Criticism has also been fired at the FRC itself following the Carillion disaster. Some MPs have expressed their wish to break up the power of the Big Four firms – KPMG, EY, Deloitte, and PwC.

Consequently a review into the FRC, led by former treasurer John Kingman, is currently underway.

 

 

 

 

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