The U.K.’s Financial Reporting Council (FRC) has sanctioned the firm of Grant Thornton and its former partner Philip Westerman for insufficient rigor in the audits they performed in 2016 and 2018 on the accounts of what was then Sports Direct International (now Frasers Group).
Westerman, who had been with the firm since 2014 and was in charge of both audits, has incurred reduced fines of £63,000 (€74,000) for the first and £16,575 (€19,449) for the second. The firm, meanwhile, has incurred reduced fines of £1,190,000 (€1,400,000) and £193,375 (€226,878).
At issue in 2016 was a failure to disclose that “Delivery Company A”, Barlin Delivery Ltd, was a related party, as it is owned by John Ashley, brother of Frasers CEO Mike Ashley. Sports Direct International entered into business with Barlin back in 2015, when reworking its e-commerce to account for the VAT on goods sold to individuals in the EU. Grant Thornton and Westerman noted in their 2015 audit that disclosure of the contract would have to be made the next year. The firm’s tax team made a similar warning at the time.
2018 failings involved inventory provisions
The failings of the 2018 audit had to do with inventory provisions (£162.2m, or €190.6m) and e-tail sales (£679m, or €798m), which the firm identified as significant audit risks.
According to Jamie Symington, deputy executive counsel to the FRC, Grant Thornton’s failings were “serious and relate to fundamental auditing standards.” Auditors must, Symington continues, “exercise good judgment based on sufficient and properly documented evidence. The package of financial and non-financial sanctions imposed by the FRC on the auditors in this case will help to drive improvements at the firm and the wider industry.”
Fraser with a new auditor
Grant Thornton is the U.K.’s sixth largest auditing firm. It served Sports Direct International from February 2007, date of the retailer’s listing on the London Stock Exchange, to 2019, when it failed to anticipate a bill addressed by the Belgian government to Sports Direct for £614 million (€721m) over VAT charges on goods traded in the EU.
Frasers has since engaged a new auditor, RSM, after the refusal of Deloitte, Ernst & Young, PricewaterhouseCoopers and KPMG. (The group has an unresolved dispute with Deloitte over a recommended tax structure.)
Frasers has cautioned in a statement: “The FRC’s investigation and findings relate to Grant Thornton and Mr Philip Westerman only. As is made clear in the FRC’s Final Decision Notices, there are no criticisms of Frasers Group, no issues in relation to Frasers Group’s historical financial statements and no findings that there were any undisclosed related party transactions within the Group.” The group believes it was “technically correct in its disclosure of related party transactions” but acknowledges that “further disclosure within the accounts might have avoided” the trouble.
