Grant Thornton fined for ‘serious failings’ in Sports Direct audits

Grant Thornton must pay a £1.3m penalty for “serious failings” in its audit of retailer Sports Direct, the accountancy regulator said on Monday.

The findings relate to Grant Thornton’s audit of the sporting goods chain, now called Frasers Group, for the 2015-16 and 2017-18 financial years and the work of Philip Westerman, the partner responsible for the audits.

Westerman, who is no longer a partner at the firm, faced a penalty of almost £80,000, he added.

The fines for Grant Thornton and Westerman were reduced by £2m and £120,000 respectively because they admitted there were problems with their work.

The auditor and Westerman were severely reprimanded for their handling of the audits. Grant Thornton will have to report to the Financial Reporting Council (FRC) on its work to improve auditing standards.

The findings related to the firm’s and Westerman’s failures to prove that Delivery Company A, a group involved in many of Sports Direct’s transactions, was a related party.

The FRC said that while respondents identified related parties as “an area of ​​significant risk” for the audit, they failed to treat with “professional scepticism” management’s assertion that Delivery Company A was not a related party of Sports Direct .

“There were a number of important factors which should have prompted the respondents to consider and pursue the matters further, but they did not,” the FRC said.

The regulator’s executive counsel made no finding on whether there was a related-party transaction, Monday’s statement said. Transactions between listed companies and other entities controlled by their directors, controlling shareholders or persons close to them must be disclosed in the annual accounts.

The Financial Times reported in 2016 that the delivery company A was Barlin Delivery, which was controlled by John Ashley, the brother of Sports Direct founder Mike Ashley. Neither the regulator nor Frasers responded to a request to confirm his identity.

The FRC’s findings against Grant Thornton and Westerman concerned “fundamental and significant requirements” that were “fundamental to an auditor’s work”.

“As a result of the adverse findings, the 2016 and 2018 audits failed in their primary objective of providing reasonable assurance that the 2016 and 2018 financial statements were free of material misstatement,” the FRC said.

The fine is the latest payment by Grant Thornton for problems with its audit. It was ordered to pay more than £3m in fines last year for failings in its checks on the accounts of collapsed cafe chain Patisserie Valerie and contractor Interserve. It has also settled a legal claim brought by the administrators of Patisserie Valerie.

Grant Thornton said it was pleased to conclude the “protracted matters”. Grant Thornton resigned as Sports Direct’s auditor in 2019 after the company’s results were delayed over handling a €674m Belgian tax bill. Other major accountancy firms refused to take on the job before the retailer eventually appointed accountancy firm RSM, which did not audit any other FTSE 350 companies at the time.

“Having invested significantly in the quality of our audits since this time, we have seen a marked improvement in our results and are confident that the issues identified by the FRC’s investigations. . . they do not reflect the work we produce today,” said Grant Thornton.

In a statement, Frasers said that while it still believed it was “technically correct in disclosing related party transactions”, it admitted that “with hindsight, further disclosure within the accounts could have avoided this particular aspect of the investigation”. FRC”.

He also stressed that “there are no criticisms of Frasers, no issues with Frasers’ historical financial statements and no finding that there were any undisclosed related party transactions”.

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