MPs are demanding that the Financial Reporting Council (FRC) provides details of the reasons why it has fined PwC £10m over its 2014 audits of Taveta Group and BHS, saying the financial penalty is ‘unprecedented’ and suggesting there should be a wider investigation over the firm’s auditing of the Taveta group accounts
The work and pensions select committee has written to the regulator, asking for explanations of the nature of the misconduct which resulted in fines for both PwC and audit partner Steve Denison. The committee also wants to know why the report of the FRC’s findings has not been made public, and whether it plans to do so.
The letter states: ‘In the absence of any published explanation other than “misconduct” for why the fines were levied, it is difficult to establish whether they were appropriate.’
Frank Field, chair of the work and pensions committee, said: ‘The committee is now pressing FRC on whether further investigations, and wider and stronger sanctions, are called for.
‘On the basis of their reply, the select committee may request the right to appeal to the FRC to significantly increase the fines, putting them in the vanguard of necessary reforms.’
Field said that while the FRC’s fine was ‘undoubtedly a good first move’, it also reopened what he called ‘the key question of whether BHS was in fact a “going concern” when it was jettisoned for £1.’
The committee’s 2016 report on the sale of the retailer concluded that BHS Group’s 2012–13 and 2013–14 annual report and accounts made clear that the company was a ‘going concern’ on the basis of financial support provided by the wider Taveta Group.
The 2013–14 annual report and accounts were signed off on 6 March 2015, just days before the sale of BHS to its new buyer, Retail Acquisitions Ltd (RA)L and while the key substance of the deal was still being negotiated. The committee claimed this was notable because the accounts were normally signed off in May of each year.
Despite being aware that BHS was due to be sold imminently and, in such a situation would lose the ongoing support from Taveta, PwC did not dispute BHS’s directors’ assessment that the business remained a going concern.
The report stated: ‘Given that Grant Thornton’s own due diligence of BHS had identified a number of significant risks to BHS meeting its cash flow requirements, we were surprised that PwC did not more deeply question whether BHS was genuinely being sold as a going concern.’
The committee stated that PwC audited Taveta and its subsidiaries from 2003, including BHS from 2009 when it came into the Taveta group until the point at which it was sold.
The letter to the FRC states that between 2004 and 2017, PwC was paid £16.1m by the group, including £4.5m for statutory audit services and £11.5 m for non-audit services.
Included in the six questions the committee is now posing to the FRC in its letter are queries about whether BHS was a going concern when its 2014 annual accounts were published, and whether the FRC has shared its findings with other regulators.
The committee also questions whether PwC had conflicts of interest in auditing BHS as well as the group that was attempting to sell it, and in providing other services to Taveta which it says were substantially more lucrative than its statutory audits.
Work and pensions committee letter to the FRC is here: https://www.parliament.uk/documents/commons-committees/work-and-pensions...
Report by Pat Sweet
