PwC handed record fine over BHS audit

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PwC has been struck with a record £6.5m fine and a severe reprimand by the Financial Reporting Council after an investigation into the Big Four firm’s role as external auditor on the 2013-2014 accounts of the beleaguered retailer BHS and Taveta Group.

PwC accepted its BHS audit shortcomings in a statement released after the announcement where it apologised for its work falling “well below the professional standards expected”.

The Big Four firm said it recognised the importance of learning the necessary lessons. “At its core this is not a failure in our audit methodology, the methodology simply was not followed. As a result of our internal reviews we took swift action to enhance our monitoring procedures. We have agreed with the FRC to extend these further for an additional period,” said a PwC statement.

PwC audit partner Steve Denison also regretted the mistakes that led to the Financial Reporting Council's (FRC) decision to fine him £325,000 (originally £500,000) and order that he does not perform audit work for a period of 15 years. It was a decision that Denison described as a “heartbreaking” finish to his “unblemished 30-year career at PwC”.  

The FRC had originally sanctioned a fine of £10m, but that was subsequently reduced after a settlement to £6.5m. The fine takes the unwelcome accolade as the biggest penalty issued in the UK, dwarfing the previous £5.1m record PwC also held for its 2011 audit of RSM Tenon.

PwC’s Leeds Audit practice will also face scrutiny from the FRC for the next three years, and PwC must provide detailed annual reports about the practice to the watchdog.

The Big Four firm is also required to amend its policies and procedures to ensure that audits of all non-listed high-risk or high-profile companies are subject to an engagement quality control review.

PwC also stressed in the statement that its failings did not contribute to the collapse of BHS one year later. However, at the time of the collapse, PwC was criticised for signing off the 2013-14 account days before BHS was sold to Dominic Chappell’s Retail Acquisition Limited for £1 in 2015 and not “deeply” questioning whether BHS was genuinely being sold as a going concern.

BHS closed its doors for the last time in August 2016 – a fall from grace from the 2004 glory days of £889m revenue and operating profits exceeding £100m.

The penalty comes after the FRC had made overtures about breaking up the Big Four’s audit dominance because of a “loss of confidence in audit”, driven recently by the Big Four’s audit of government outsourcing firm Carillion.

The FRC hasn’t escaped its share of criticism either, as Sir John Kingsman recently announced his advisory group tasked with examining the accounting watchdog’s role and powers; in particular its “feeble and timid” response to the Carillion collapse. 

About Richard Hattersley

Richard Hattersley

Richard is AccountingWEB's practice correspondent. If you have any comments or suggestions for us get in touch.

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15th Jun 2018 09:11

Bosses blaming their minions for not following systems but wonder what they'd have said if they'd refused to sign off the accounts for such a big "blue chip" company? Suspect they'd have been shown the door one way or another so why wouldn't they sign them off? PwC seem to have a bit of history of this sort of thing so maybe the bosses need to look a bit closer to home...

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By ShayaG
to rememberscarborough
20th Jun 2018 11:00

Even in PwC, audit partners are more akin to bosses, not minions.

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15th Jun 2018 17:41

I've long thought that the big firms are a cosy elite of people paid far too much and hiding behind their more junior managers. How can someone so senior be so negligent after an "unblemished career"? So what other audits has he been involved in then?

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20th Jun 2018 10:25

The expression 'Gamekeepers turned poachers' springs to mind when describing some of the 'big' accountancy firms.

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20th Jun 2018 10:25

The expression 'Gamekeepers turned poachers' springs to mind when describing some of the 'big' accountancy firms.

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20th Jun 2018 10:40

When auditors are paid their million pound fees by the companies they audit, what chance in the real world do you have of them refusing to sign off their accounts? Maybe there should be a "Crown Auditing Service"?

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By ShayaG
to Wiganer Elaine
20th Jun 2018 11:07

Not sure how this new, vast nationalised industry would be funded.

But I 100% agree with you that independence cannot be bought.

The best idea I've heard is the mandatory annual rotation of audit firms, with a minimum of 7 or 8 years' gap.

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to ShayaG
20th Jun 2018 14:32

Maybe all audited firms should pay their audit fee (based on turnover) directly to the "Crown Auditor"?

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By mominnz
20th Jun 2018 10:46

Absolutely brilliant news.
These big four are the biggest mafia in the audit market.
There is no way that the sort of intelligent mix of people working for them cannot detect failings in the framework.
All they care about is huge bills for just reading a balance sheet.
Infact they should be completely banned and the more regulatory changes are required in the field of audit with smaller companies given a chance to work.

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20th Jun 2018 10:47

From looking online it appears that PWC were paid over £16million in fees for providing audit services and advice to the group...£6.5 million fine sounds like a result!!

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20th Jun 2018 16:23

I am always a little perplexed by these decisions. Because if PWC are the best of the best and they have lots of qualified staff who are really clever and 100s of years of experience and excellent IT systems . How could they simply get something so wrong that the fine was £6.5m

Also the article doesn't really say what was wrong. It would be interesting to know so the other auditors out here don't make the same mistake.

Puzzled I am.....

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