September 17, 2019

U.K. Watchdog Blasts PwC for ‘Incomplete, Inaccurate, and Misleading’ Audit of BHS

PwC fdic colonial

In a leaked Financial Reporting Council report, the U.K’s accounting watchdog hammered PwC for bungling the audit of BHS, which resulted in “incomplete, inaccurate, and misleading” statements being made about the now-defunct retailer’s financial situation just before it was sold for £1, according to Accountancy Age.

The article states:

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.

PwC has already been hit hard in the wallet for its BHS audit failings, as the FRC fined the Big 4 firm a record amount of £6.5m in early June. In addition, PwC audit partner Steve Denison, who was responsible for signing off on BHS’s accounts, was fined £325,000 and received a 15-year ban.

However, the FRC’s detailed report on its underlying reasons for the sanctions against PwC has not yet been published, sparking outrage among members of parliament, according to the Financial Times. The FRC has not said when the report will be published.

PwC issued a mea culpa after details of the FRC report were leaked, according to Economia:

A PwC spokesperson said, “We are sorry that our work fell well below the professional standards expected of us and that we demand of ourselves. This is unacceptable and we agreed the settlement recognising that it is important to learn the necessary lessons.”

The firm said its audit methodology was “not followed in this instance”. It emerged that Denison spent only two hours working on the BHS audit before signing off the accounts, and that he backdated his audit opinion.

The report sounds like it’s pretty damning against PwC and Denison. So the firm better be ready to batten down the hatches. It’s going to get pretty rough.

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