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.