Huw Jones and Kirstin Ridley
PwC should have flagged significant doubts over the future of BHS in an audit that was completed just days before the now collapsed British retailer was sold for a token £1 in 2015, according to UK regulators.
BHS, which was sold in 2015 by billionaire retailer Philip Green’s Taveta Group, had 163 stores and 11,000 staff when it collapsed a year later, triggering a political firestorm.
The UK’s Financial Reporting Council watchdog in June fined PwC a record £6.5m (€7.3m) and former partner Stephen Denison £325,000. Denison was also effectively banned from auditing for 15 years.
After pressure from politicians and a court challenge by Taveta, the council has published documents detailing eight allegations of misconduct that prompted the penalties.
The council said that in the Taveta audit for the year ending August 30, 2014, PwC and Denison gave no consideration to potential red flags that could have impacted BHS’s ability to continue trading.
“They failed to gather any audit evidence on which to conclude that the going concern assumption was appropriate,” it said.
“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.”
PwC said it was sorry its work fell well below the professional standards expected.
“This is unacceptable and we agreed the settlement recognising that it is important to learn the necessary lessons,” it said.
The top four auditors — PwC, KPMG, Deloitte and EY — are under intense scrutiny in the UK over how they failed to spot company collapses and for juggling audits and more lucrative non-audit work for the same clients.
MPs have called the council toothless over its handling of the BHS audit and the watchdog’s powers are being independently reviewed.
The documents are likely to spark fresh calls for the audit and non-audit operations of the big four audit firms to be split up.