MPs pressure FRC over BHS findings

MPs are demanding the Financial Reporting Council (FRC) provides more details of its investigation into PwC’s auditing of BHS as a going concern prior to the retailer’s sale for £1, now that its previous owner, Taveta Group, has lost a court appeal to prevent full publication of the regulator’s findings

Last month the FRC fined PwC a record £10m over its 2014 audits of Taveta Group and BHS but did not publish details of the investigation or the settlement agreement.

Taveta Group mounted a legal challenge to block the report being put into the public domain, on the grounds it had the ‘potential to be very damaging’ to some of the individuals named and also contained inaccuracies to which the company had not had the opportunity to respond.

The High Court has ruled that Taveta failed to demonstrate that this is the sort of exceptional case that permits the grant of an interim injunction on publication. [Taveta Investments Limited -v- The Financial Reporting Council & Others [2018] EWHC 1662].

The judge stated: ‘The injunction is sought to restrain the publication of statements alleged to defame Taveta personnel pending Taveta’s judicial review claim. Although I have found that the threatened publication does make criticisms of the Taveta personnel that are capable of being defamatory of them (and seriously so), such a threatened publication is not exceptional.’

Now the work and pensions select committee has written to the FRC asking what it plans to do about publishing its report. The letter also questions whether the regulator’s current powers go wide enough, as it argued during the High Court case that Taveta is not regulated by the FRC and therefore was not the subject of the investigation nor a party to the settlement agreement.

The committee says this highlights a weakness in the FRC’s powers that was also exposed as part of the inquiry into Carillion, namely that the FRC has no ability to investigate individuals that are not chartered accountants. MPs want to know whether the regulator would favour an extension to ensure that all directors who exert influence over financial statements can be investigated and punished as part of the same investigation, not just those with accounting qualifications.

The letter states: ‘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?’

In addition, the letter takes the FRC to task over how going concern is assessed and reported, suggesting the regulator does more to ensure that auditors are properly challenging the appropriateness of going concern statements.

It states: ‘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.’

Taveta Investments Limited -v- The Financial Reporting Council & Others [2018] EWHC 1662 is here.

Letter from Frank Field to the FRC is here.

Report by Pat Sweet

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