The Work and Pensions Committee has written to the FRC with a series of questions about its controversial, and not yet fully published, report on PWC’s 2014 audit of Taveta, which included signing off BHS as a going concern days before its now infamous sale for £1.
Last week the High Court rejected Sir Philip Green’s attempt to suppress publication of parts of the report that refer to Taveta directors and the financial information they provided for the now discredited audit.
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 in which PWC admitted misconduct and accepted the biggest ever fine levied by the FRC. This was part of Taveta’s case for an injunction, but as the letter says, it also “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.
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.” The letter continues “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?
Would the FRC have opened investigations into other members of senior management if they had the ability to do so?” The Committee is separately writing to the IS on the question of re-opening its investigations into the actions of the Taveta directors, whether they were accountants or not.
The letter also highlights parallels between BHS - which survived barely a year after being sold as a “going concern”, as certified by PWC – and Carillion, which FRC is currently investigating:
“Clearly, therefore, PwC’s failure over BHS is not an isolated incident when it comes to the going concern basis. 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.”