FRC slams PwC in 'devastating' BHS audit report

A report by the Financial Reporting Council (FRC) has slammed PwC over its “incomplete, inaccurate and misleading” audit of now collapsed retailer BHS.

Published today, the “devastating” report said that PwC and one of its former partners Steve Denison failed on numerous occasions to comply with the standards “reasonably expected”, while auditing the group.

In July, Denison, the auditor for BHS from 2009 until when it was sold to Dominic Chappell in 2015, was given a £500,000 fine, and has been banned from undertaking any audit work for 15 years, while PwC was handed a £10m fine and told to monitor and support its Leeds Audit Practice and provide detailed annual reports to the FRC for the next three years.

Work and Pensions Committee Chair, Frank Field, commented: “At long last, the FRC has published its devastating report on the BHS audit. The report describes the most incredible example of complacent audit rubber-stamping one could fear to imagine.”

The report highlighted how Tevata Group, Philip Green’s holding company, argued that the audit was simply “very optimistic” about BHS’s prospects as a "going concern".

“If Sir Philip and his fellow directors really do believe they had proper evidence that BHS was a going concern, then surely they will be happy to put that evidence in the public domain so that BHS employees, pensioners and creditors can judge for themselves,” Field added.

BHS, which had 163 stores and employed 11,000 people, entered liquidation on 25 April 2016 with a pension scheme deficit of £571m.

In 2014 the Taveta Group submitted a draft Regulated Apportionment Arrangement (RAA) to The Pensions Regulator, to scope a potential restructuring of its pension scheme, but decided to pause their application until January 2015 in order to “consider their options”.

Furthermore, Davison and PwC charged a contingency fee for a pensions incentive exercise despite the threat of “significant self-interest threats to the auditor’s objectivity and independence” as they may hold an “interest in the outcome of the non-audit service”.

In July, Field wrote to FRC chief executive Stephen Haddrill querying why the release of the report, thought to contain “serious criticisms “of Taverta Group, had been delayed, over fears that Teverta has attempted to suppress the findings.

Field said the Committee will take another look at the original findings to ensure that the latest report has not been “suppressed”.

Earlier this week, the BHS2 Pension Scheme has completed an £800m buyout with Pension Insurance Corporation, securing its 9,000 members’ pension benefits in full.

The BHS2 Scheme, which covers the members of two predecessor schemes, was set up in 2017 following the collapse of BHS and a subsequent £363m cash injection from Green.

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