As the FT has noted this morning:
Sports Direct has asked the UK government to clarify how it might act if the troubled retailer becomes the first major listed business to fail to appoint an auditor.
Grant Thornton, which has audited Sports Direct since it floated on the London Stock Exchange in 2007, has told regulators that it intends to quit after the retailer's annual meeting of shareholders in September.
The decision leaves Sports Direct struggling to appoint a replacement auditor, as it admitted that it had not previously persuaded rival accounting firms to tender for its audit contract.
The situation is extraordinary. The government does have the power to appoint an auditor to a company that has not got one. It has never had to do so. The result is that Sports Direct is in uncharted water here, but so too is the government, and the auditing profession.
What to do? Who knows? And what power has the government to impose an obligation on a commercial firm, which the auditors are?
The most interesting question is, of course, what if they fail to persuade anyone to accept the appointment? The profession is then dead: the 'bus stop' principle that permits its statutory monopoly by guaranteeing that the profession will always supply an audit if it is required will have been shattered. And the monopoly would have to go along with it.
And the alternative that the government would have to supply audit services itself - maybe via the National Audit Office - would have to be created.
What is not an option is to dispense with the audit.
This is a profession that is now in existential crisis, and I very much doubt it knows what to do about it. But then, that's what defines an existential crisis.
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Richard do we know why SportsDirect can not replace their auditor? Two possibilities occur though I’m sure there are more. First the audit profession consider the management of SportsDirect to be so dodgy no one wants to take them on. Or second and more likely perhaps, no other firm will do it for the price SportsDirect are prepared to pay. If Mike Ashley smashes the magic mirror of the audit profession monopoly he will have done capitalism a service. Paying good money for old rope has never been a good look for any entrepreneur. On the other hand paying for the audit certificate to veneer financial atrocities by bankers has been shown to be good value for those making the most from casino capitalism.
We do not know
But the impression is that it has moved from price to not wanting to touch with a barge pole. The reputaional risk is considered too high.
Of course, Ashley could be ordered to pay whatever price was necessary or go out of business.
And the auditors could have the gumption to the the money and qualify – which would be a massive step forward.
But I suspect that right now there is a simple impasse.
“And what power has the government to impose an obligation on a commercial firm, which the auditors are?”
In practice they don’t have any except bribery…..that is part of the nonsense which is privatisation. Government has ceded control of its responsibilities for governance…… beyond picking up the tab when it goes to bagwash…..and in the standard jargon, passing it onto the taxpayer.
The Welfare State is alive and well, but only the wealthy qualify for benefit. We’ve moved a long way in a perverse direction in four decades.
Given that they’re all constantly in the doghouse what kind of disaster does Sports Direct present that the people who cheerily sign off companies like Carillion baulk at the prospect? Or are they just put off by the Ashley family?
Or maybe they have realised there is need for change?
“Or maybe they have realised there is need for change?”
Seen the light ? Pfwwgh!
……. seen a vision of impending darkness more likely?
The big four have built an empire. Empires always collapse eventually from internal corruption and external pressure. Hubris, I think the ancient Greeks would have called it.
….but there’s a way to go yet. Empires take a long time to die, and a great deal of Champagne gets consumed in the phase of decline.
Why the hell are auditors needed in the age of software? It’ll be a thousand times cheaper I suppose to go through their accounts.
Because software does not exercise judgement and that is what auditing is all about
This crisis has been caused by the big 4/large accountany firms whose partners have sought to increase their reward whilst reducing their risk by turning auditing into a rule based, box ticking exercise and absolving themsleves of the responsibility to exercise judgement and criticise the Boards of Directors who hold the keys to their lucrative consultancy services.
That they have been allowed to do this by succesive governments and regulators is nothing short of a disgrace.
And Sports Direct will be only the tip of the iceberg as partners in these firms see their earnings suffering due to fines and the loss of consultancy work.
Nothing short of a fundamental review of company reporting, increased regulation and supervision of public companies and a genuinely independent audit service is required.
I won’t hold my breath.
I wouldn’t