BHS auditor banned

As well as banning Denison, FRC also fined him £325,000 and PwC £6.5m.

“The recent action taken by the FRC, on both PwC and a senior partner of the firm, points to flaws in terms of audit process and individual accountability,” Michael Izon, MCQI, R&D Director at Tissue Regenix, tells QW.

He says that details to the specifics of the issues by the FRC are vague, other than a general statement of misconduct at an individual level, and poor-quality work by PwC.

In 2015, Denison signed off the BHS accounts as a growing concern, just days before it was sold for £1. BHS collapsed in 2016 with the loss of 11,000 jobs and a pension deficit of £571m.

According to Sky News, PwC UK Chairman Kevin Ellis said that the work undertaken by Denison on the audit was "inadequate".

The catalogue of failings included backdating his opinion that BHS was a growing concern by three days, and making a "false statement on the audit file relating to the circumstances of the backdating".

Ellis also said Denison had heaped too much of the work onto a junior staff member and only clocked in two hours of work during the completion stage of the report.

The 2017 audit of PwC by the FRC indicates improvements were required in the quality of audit evidence used during financial audits.

“It would of course be easy to wag a finger at PwC and point to a copy of ISO 19011 on the importance of audit evidence. Perhaps ISO 19011 provides us with a good reminder to help prevent our very own ‘BHSgate’ in the future,” Izon says.

He adds: “Individual competency and accountability are fundamental to audit standards such as ISO 19011. Voluntary professional bodies, such as IRCA and RABQSA (Registrar Accreditation Board and Quality Society of Australasia), help to ensure the maintenance of these standards.”

In terms of audit process, he says that ensuring a high quality of audit evidence must be maintained, by balancing the time allowed for the audit with the risks associated to the product or process. “This can be difficult to do,” Izon says, but bodies such as AAPG (Accreditation Auditing Practices Group) define audit days required to ensure a sufficient audit sample is taken. The FDA (Food and Drug Administration) QSIT (Quality System Inspection Technique) guidance goes one step further and proposes a technique for statistical sampling of a quality management system.

“Independence is fundamental to any audit, financial or quality. Familiarity, along with the need to be helpful, can affect the outcome of an audit adversely,” Izon explains.

He says that there are good lessons to be learnt from the BHS audit failure. “But these lessons must be balanced with the overall audit objective, which is to demonstrate compliance to audit criteria, not to systematically try to find non-compliances to justify our audit visit,” he concludes.