Grant Thornton quit as auditors of Sports Direct over the weekend. After the debacle of its results announcement maybe that's not a surprise. That a tax dispute appears to have created the crisis may not also be a surprise, but my interest at present is in what happens next. As the FT has reported:
Sports Direct said in its results that it had held “early discussions” with the Big Four accounting firms over a possible tender process to replace Grant Thornton. It revealed that KPMG, Deloitte and EY had told it they were conflicted from auditing the business, and PwC had a “reluctance to engage based on our ownership structure”.
BDO, a mid-tier accountant, ruled itself out of a proposed tender process last year, citing reputational risk. Mazars, another challenger firm, approached Sports Direct about becoming its next auditor but with a number of conditions around governance.
The impression gained is that Sports Direct may simply be unable to find a new auditor. I could hardly blame a firm for being reluctant to engage. And an audit engagement as it stands is not something any firm is obliged to accept.
But what if Sports Direct cannot secure an auditor, when it is legally obliged to have one? Might this precipitate the long overdue reorganisation of audit that is so necessary, and put it on a statutory basis?
I'd love to think so.
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Me too.
When you think of the disastrous effects of even the slightest problem in a school undergoing an OFSTED inspection and how a schools reputation can be trashed it does some unfair that the mirage that is ‘auditing’ has been allowed to go on for as long as it has.
There is a string indication that the tax dispute has arisen after HMRC instructed SD to contact all of the member states where they were using the now defunct VAT avoidance scheme around ‘distance selling’. As a reminder, SD rearranged internet deliveries so that a customer entered into two contracts. One with SD for the goods and one with Barlin, a delivery company run by Mr Ashley’s brother…read more about the fallout of this too! Thus it was argued the company did not supply delivered goods and could apply UK VAT and UK zero rates on certain items rather than registering in another 27 member states. The EU effectively called Bollocks on this charade a few years ago. John Lewis did the same I hear.
My guess is Belgium are but the first member state to pull the trigger and ask for their money. This would mean that UK VAT has been overpaid but it will be an unholy mess to sort out.
I rarely agree with you, but on this occasion you are right – this is a dog with fleas to quote a certain my G Gecko.
Hmmmm…..
The big four have conflicts of interest….? Who’d have guessed?
I think I can see the dots in the sky that look like vulture capitalists circling. Sports Direct will be a tasty little carcass long before we get a redesign of the audit system methinks…….. assuming we have a regulatory body that actually cares whether an audit takes place as is required………
Is that rat I can smell?
Surely an audit could be performed on any business, by any independant auditor, without incurring reputational damage for themselves, by providing an adverse or disclaimer of opinion. Is this more the case that these audit firms are refusing to act because they don’t want to risk signing an unmodified audit report for the audit fee?
Also if the state appointed a “reluctant” auditor, what would the outcome be?
I suppose this could have unintended consequences where a disclaimer of opinion becomes so common that it becomes a means for opacity. Or should there be legal consequences for having unauditable accounts?
As a journalist said to me this week, they cannot imagine ever seeing a qualified audit report
And that is the problem