MP presses FRC on PWC audit of BHS
More Big Four woes. MP Frank Field, chair of the work and pensions committee, wants an update from the Financial Reporting Council over its mainly unpublished but stinging report on PWC’s 2014 audit of Taveta.
That's the one that included auditors signing off Philip Green's BHS as a "going concern" days before its sale for £1.
Last week, Green tried to gag parts of the report that refer to Taveta directors and financial info on the now discredited audit.
Publish the report
High court judge Matthew Nicklin rejected the request and gave the FRC permission to publish the report. Field writes: "Could I ask how the FRC now intend to proceed on this matter?"
Field's letter to FRC chief Stephen Haddrill, goes on: "During the case the FRC argued that Taveta are not regulated by the FRC and therefore were not the subject of the investigation, nor a party to the settlement agreement." That's where PWC admitted misconduct and accepted the biggest fine levied by the FRC.
The missive says of the situation: "It highlights a weakness in the FRC’s powers that was also exposed as part of the inquiry into Carillion; the FRC has no ability to investigate individuals that are not chartered accountants.
Actions of individual directors
"So even if the FRC did find fault with the actions of individual directors in the preparation of the accounts, they were powerless to take action against most of them.”
And another thing... “Our understanding is that only one member of the Taveta Group senior management team, Gillian Hague, was a member of a qualifying accountancy body, the ICAEW, at the time of signing the accounts. Could the FRC confirm if she was or is subject to any individual investigation?
Field also asks if the FRC would welcome an extension to its powers in this area.
Sold as a going concern
"Would the FRC have opened investigations into other members of senior management if they had the ability to do so?”
The letter further highlights parallels between BHS, which survived about a year after being sold as a “going concern”, as certified by PWC – and Carillion, which FRC is investigating...
"Clearly, therefore, PWC’s failure over BHS is not an isolated incident when it comes to the going concern basis.
Skewed incentives
"It feels like once again this is a case of skewed incentives working against the best interests of ordinary stakeholders, such as employees and pensioners.
"On the one hand you have management teams who have little incentive to openly admit to the risk of their companies collapsing and on the other you have an audit team whose whole audit approach would need to be reassessed if it was felt that the going concern basis was not appropriate.
"The result appears to be going concerns statements that are rubber-stamped with insufficient levels of challenge from auditors. What more should be done to ensure that auditors are properly challenging the appropriateness of these going concern statements.”
