By our reporter
The credibility of another top Audit firm PricewaterhouseCooper (PwC) is under test after the UK regulator fined them £10m after being caught in “serious” professional misconduct.
The move has been hailed by observers, saying the regulator has finally showed “some teeth”.
The fine comes after the audit firm failed to perform its duties professionally while carrying out 2014 audits for BHS and the Taveta Group, before they were sold. PwC had audited BHS for seven years since it became part of the Taveta Group in 2009 and was in the know that the sale of the company was imminent.

The UK regulator also went further to fine PwC its top audit partner Steve Denison £500,000 and barred him from practicing for 15 years. Denison has been at the firm as a partner for more than three decades.
According to Accountancy website, The United Kingdom is the country’s regulator, the Financial Reporting Council (FRC) has in addition to the financial penalties, required PwC to monitor and support its Leeds audit practice and provide detailed annual reports about that practice for the next three years.

PwC, one of the top auditing firms in world, has also given an undertaking to review and amend its policies and procedures to ensure that audits of all non-listed high risk or high-profile companies (including private companies which employ at least 10,000 individuals in the UK) are subject to an engagement quality control review.
The regulator’s spokesperson says, ‘The settlement agreement was made on 31 May 2018. The new sanctions guidance, implementing the Clarke report, did not come in to effect until 1 June 2018. So this case was settled under the old, pre-Clarke, guidance.

‘The £10m is based on the extent and seriousness of the misconduct.’
The £10m figures reflects the move towards issuing larger fines in recent years, which has been reinforced by the recommendations of an independent review of FRC sanctions undertaken by former Court of Appeal Judge Sir Christopher Clarke, which suggested introducing a fine of £10m or more for seriously poor work by a Big Four firm and greater use of non-financial penalties.

It also marks a much swifter response to audit failures, as the FRC has completed the investigation and issued fines and disciplinary measures within two years of opening the probe.
In a statement, PwC said: ‘We recognise and accept there were serious shortcomings with this audit work.
‘We have agreed this settlement, recognising that it is important to learn the necessary lessons. At its core this is not a failure in our audit methodology, the methodology simply was not followed.
‘As a result of our internal reviews we took swift action to enhance our monitoring procedures. We have agreed with the FRC to extend these further for an additional period.

‘We have fully cooperated with the FRC throughout, including making a very early admission.’
This record fine for PwC, even if it is settled early, follows a £5m fine over the Connaught social housing audit issued in May 2017, and last August a fine of £5.1m, reduced from £6m after settlement, for ‘extensive’ misconduct over the audit of the financial statements of RSM Tenon Group, the former accounting consolidator.
The FRC investigation into the BHS audit under the Accountancy Scheme opened in June 2016, two months after the retailer collapsed, having been sold by then-owner Sir Philip Green to Dominic Chappell’s Retail Acquisitions Ltd (RAL) for £1 a year earlier.

A subsequent work and pensions (DWP) and business, innovation and skills (BIS) joint select committee inquiry was highly critical of PwC’s role as external auditor to BHS in the run-up to the sale, and of Denison who had been lead audit partner since 2008.

The committee said 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 RAL and while the key substance of the deal was still being negotiated.
The committee questioned why, 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.

In the run-up to the sale of the business to Dominic Chappell, BHS changed its reporting, pulling forward the audit of BHS and filed accounts in March, not May.

KPMG in similar mud waters
In April this year, another audit firm, KPMG LLP’s South African unit suffered a setback after getting embroiled in three evolving scandals.
KPMG issued a public apology for work done for the politically connected Gupta family, withdrew the findings of a report about the country’s tax authority, and interrogated staff who signed off on VBS Mutual Bank’s accounts before it failed.

“We’ve reached the breaking point,” Chairman Wiseman Nkuhlu told reporters, before pledging to vet KPMG’s more than 3,000 staff spread across two large buildings in central Johannesburg every two years for warning signs of malpractice.
He’s also called in international colleagues to help probe the quality of past audits and set up a hotline for employees to report corruption. “Owning up to the fact that things are broken is very important,” the 74-year-old said