This is from the Guardian this morning:
Accounts for Patisserie Valerie dating back to at least September 2014 contain unreliable figures on its financial performance, according to information sent to potential bidders for the stricken cafe chain.
Interested parties have been asked to put forward first round bids by Friday but so far have only limited information about the recent trading performance at the company, which fell into administration this month.
Sources told the Guardian that information sent to bidders by KPMG, which is acting as administrator, indicated only sales and profit data from after October 2018 or before September 2014 could be relied upon.
So an auditor managed to sign off years of false financial statements.
How? because auditors are essentially only now required to check that the accounting rules are followed. They are not required to check that the accounts are true and fair any more.
I suspect Patisserie Valerie made all the right disclosures. But not necessarily of the right information.
And the auditors thought the disclosures were all they had to worry about.
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I recall PV as just a single shop on a small street in Soho, just along from where Karl Marx used to live in a house with one of grandmothers distant cousins. It could explain his dental problems. It was a lovely and special place where wonderful cakes might be had. It was known to only a select group of gourmet guzzlers. Then it was sold and became one of a small group of shops which with more added in London. They were bought out and further expanded until PV became a chain. The chain was bought out and it became a brand and onward to the shambles we have today as an element in yet another financial services disaster.
I hate this sort of thing.
Because the first thing I think of is the staff whose livelihoods are put risk and often discarded.
That’s true PSR, but in this case there is a silver lining to the cloud. And that is that all this has happened under the ownership of the tedious, bumptious right wing serial ‘entrepeneur’ Luke Johnson. A man always keen to tell other people where their businesses were going wrong, and point to his own prowess.
I know its schadenfreude on my part, but the blow this will have done to his reputation as an all round smartarse is too good not to gloat over.
Naturally, he is an ardent Brexiter.
I am devasted by the news about Patissarie Valerie, and was a bit relieved to hear it was administration not anything worse – there is surely is a good chance some of the cafes will be bought and stay open? I have been avoiding going into any for a while now due to fatty reasons (and no sense of control around cake), but not sure I could cope knowing it was gone out of my life forever.
Thank you to Demetrius for the history of PV. There is something about large bloated companies, chains, that just seem ,,, unethical. Lots of money to be made when a business grows so big I guess, and where there is big money,,,
Another nail in FRC coffin hopefully
https://www.thetimes.co.uk/article/caf-chain-revealed-40m-fraud-after-frc-cleared-audit-rkfj508dw
Indeed….
That may be blogged
I heard a very revealing statement from a Grant Thornton (PV’s auditors) spokesperson who was reported to have said “Auditors aren’t set up to look for fraud.” It’s almost 60 years since I started an apprenticeship in a CA office, but I remember very clearly being told by one of the partners that “it wasn’t the auditor’s responsibility to find fraud; it was the client’s management’s responsibility to prevent fraud. However, if a material fraud existed and was not detected by the auditors, the reputational damage to the firm could be massive and therefore we all had to be vigilant about the possibility of fraud at all times. This meant that, whenever we were unable to understand something, we had to consider all possibilities, including the possibility of fraud” (I paraphrase, but that’s the gist of it).
I suspect this commonsense approach got ditched when auditing ceased to be principles-driven and became a box-ticking exercise. I’m missing a lot of detail on how that came about, probably because I was working overseas a lot, but do recall reading in the professional press that ICAS was trying to enforce a principles-based approach but was up against strong opposition from other Institutes. Would this have been in relation to changes in UKGAAP or international standards?
The Big 4 drove International Financial Reporting Standard
And then International Auditing Standards which made auditing a box ticking exercise to say IFRS was complied with
And this is the outcome
Like politics, auditing is a failed profession
Both the Guardian ( https://www.theguardian.com/business/2019/jan/30/ex-patisserie-valerie-auditor-says-not-his-role-to-uncover ) and Independent ( https://www.independent.co.uk/news/business/news/patisserie-valerie-collapse-accountants-auditor-didnt-check-fraud-latest-a8755016.html ) report on the Auditors answers to MPs on the Business, Energy and Industrial Strategy (BEIS) Committee – which make me think they might have been in the old rope selling business (or something equally dodgy)…
I trained at GT as well. Even in my short few years as a trainee through to qualification I can recall three frauds that we found and employees of the client were charged for.
I wonder how much the drive to release small companies from a ‘proper’ audit, limited accounts etc. – all to minimise costs for clients – has led to this box ticking exercise and lack of proper scrutiny by the very people who had the ability to suss out frauds.
I was going to say something about PV’s accounts being a bit ‘flaky’ hinting at connotations over certain type of pastry it uses but I thought that this was in bad taste (ouch – that last bit was even worse than the ‘flaky bit).
Sorry.