It also emerged that the ahead of the deal which saw BHS collapse into insolvency within months, the company’s finance director was warned that the buyer was a former bankrupt.

In the second stage of the lengthy evidence session before the joint business, innovation and skills and work and pensions committees, PwC partner Steve Denison was challenged by MPs to explain why the firm was prepared to sign off the BHS accounts as a going concern, given earlier evidence that the company’s owners and pension scheme trustees were aware of the potential move to insolvency, and that this happened five days after the sign off.

‘At the time no deal had been done, so in the event a deal didn’t happen, then there was written confirmation of  financial support from Tavata [BHS shareholder group].

‘In the event the deal did happen, that financial support would fall away and so other factors came into play such as the provision of additional cash resource for trading in the future,’ Denison said.

Asked if PwC should have considered an ‘emphasis of matter’ over the company’s prospects and pension scheme deficit, Denison said that three factors had to be considered.

‘The existing management team was trying to turn the business around, and had some success in driving costs down and reducing cash requirements; the cash requirements were lower than the losses shown; and there was a deal which would bring extra cash from the vendor and new cash from the purchaser. Compared with the plans, there was no material uncertainty,’ he said.

Prior to the evidence session Richard Fuller MP, one of the committee members, wrote to both PwC and the ICAEW about the going concern issues raised. Fuller pointed out that the auditors’ report was signed on 6 March 2015, and the sale of BHS to RAL took place on 11 March.

Fuller asked ICAEW if there were rules about notifying auditors of impending company sales, the nature of the going concern statement when a sale is pending, and guidelines regarding changes in the date of audits.

In its written reply, PwC said the completion of the audit of BHS for the year ending 31 August 2014, most of the audit work for which was carried out in late 2014, was brought forward to early March due to the possible sale and at the request of the company.  For its part, ICAEW said there are no guidelines on when an audit has to be carried out.

On the topic of the impending sale, ICAEW said auditors would need to be aware of ISA 315 ‘identifying the risks of material misstatement’.  

The deal saw BHS sold to the Retail Acquisition Consortium (RAL), headed by Dominic Chappell, who was a former bankrupt.

Due diligence beyond trustee remit

In evidence, KPMG partner Clarke said the trustees had concerns about the transaction, but were not required or able to do due diligence because this was beyond their remit.

‘From our perspective the buyers had effectively acquired a new company for the purpose, so there was no trading history, and no information about funding BHS pension schemes,’ Clarke said.

Anthony Gutman, co-head EMEA investment banking services at Goldman Sachs, which was not formally retained or paid to advise on the BHS/RAL deal, nevertheless made a number of ‘observations’ to senior management including Sir Philip Green, about the proposals.

Gutman told MPs that concerns centred included the consortium headed by Dominic Chappell who ‘had a history of bankruptcy’ that there was no evidence of any retail experience, and the business plan was ‘highly preliminary’ and lacking in detail’, so there were ‘risks’ associated with going ahead.

At the hearing, Gutman said he told Paul Budge, Arcadia Group’s finance director, of these concerns verbally.

In his evidence, Budge acknowledge he was aware of Chappell’s bankruptcy and BHS was ‘cautious’ about the sale.

‘We seriously believed there was a credible business plan and seriously believed he was surrounded by credible people,’ Budge said.

Gillian Hague, financial controller at Arcadia, said that BHS had been given a credible reason for Chappell’s bankruptcy, but suggested it was not aware of his other bankruptcies, which were revealed after BHS had been sold.

Budge said the ‘most heavy due diligence I have seen’ was conducted before the deal was completed. He said the subsequent collapse of BHS was down to Chappell failing to push through a turnaround plan for the retailer ‘quickly enough’.

On Wednesday 25 May, the select committee will be hearing evidence from advisers to Retail Acquisitions Ltd (RAL) on the deal, including Grant Thornton.

The BHS parliamentary committee hearings will continue until mid-June and full details are available here