PwC chairman Kevin Ellis’s “uncomfortable” email lambasting senior auditor Steve Denison over his “inadequate” work on failed UK store BHS was leaked to the media last week. And, quite rightly, it is causing a stir.
The FRC had at this stage already imposed a £350k fine and 15-year professional ban on Denison.
The note to 1,000-odd PwC partners focused on Denison’s shortcomings in overseeing the 2014 audit that was approved only days before Philip Green sold the department chain for £1.
Numerous failings
The chairman outlined Denison’s numerous failings in overseeing the audit. For instance, “delegating too much work to a junior team member and only recording two hours of work during the completion stage.”
Denison then backdated his opinion, assessing BHS as a going concern, and “made a false statement on the audit file relating to the circumstances of the backdating”.
Ellis’s missive added: “This situation should not have happened and we need to face up to the failings and learn the lessons.”
Pretty unsavoury stuff
It’s all pretty unsavoury stuff. So, I was interested to read an opinion piece in the FT by EY’s former head of global assurance, Christian Mouillon.
He says: “It is time to rethink what auditors do. We should stop expecting the Big Four firms and their smaller competitors to offer complete assurance that a company’s accounts are accurate.
“Instead they should provide insurance to pay out when a client company restates its results and clearly inform the market when parts of the results cannot be insured.
Finesse the facts around standards
“But the current assurance system encourages them to use their insights to finesse the facts around standards. Rather than provide meaningful information to stakeholders, they opt not to vex the companies that pay them and expect a passing grade.
“Some have suggested that splitting up the Big Four would help solve this problem. Let’s change the rules of the game instead. Auditors should stop putting out assurance reports.
“Rather, they should offer an insurance contract against the misstatement risk. This contract would be published in the annual report along with covenants that limit the auditors’ liability for the items they cannot fully insure.”