Big Four firms wary of Sports Direct's hunt for new auditor
As competition rules have led to Grant Thornton having to stand aside as the auditor of Sports Direct, the retail group has been left struggling to replace the firm. While Sports Direct is said to have attempted to tap the Big Four with regards to the contract, at least three of the firms have reportedly declined to tender for the role.
As the company approaches the back-end of 2018, Sports Direct has found itself embattled on multiple fronts, despite continued success amid a turbulent UK retail sector. Billionaire founder and CEO Mike Ashley has come under pressure at the company, following accusations from the tycoon that shareholders “stabbed [him] in the back” by allegedly forcing his former Chairman to quit the firm. Sports Direct has also come under fire for its purchase of House of Fraser, which left the collapsed firm’s 10,000 member pension fund on the brink of collapse.
Now, Grant Thornton, Sports Direct’s long-time auditor, is having to stand aside, due to competition rules. Grant Thornton has held the role since before Sports Direct floated on the London Stock Exchange in 2007, while Phil Westerman, the Partner at Grant Thornton responsible for signing off Sports Direct's accounts, has himself undertaken the work for five years, meaning he is obliged to step aside to preserve the independence of the firm's work. The sudden development saw Sports Direct submit a request in its annual report published earlier this year for Westerman's term to “be extended by one year to cover the FY19 audit", while noting that it intended to appoint a successor by the end of 2018.
The report added, "We have made the FRC aware of our intentions and have consulted with our major shareholders over the extension of his term, who have been supportive of this, subject to the necessary procedures to ensure this remains compliant with the Ethical Standard requirements."
However, while Sports Direct received overwhelming shareholder support for a resolution to extend Grant Thornton's term at its AGM in September, replacing the firm may be easier said than done. According to a report from Sky News, at least three of the world’s largest auditing and advisory firms have refused to tender for the audit of Sports Direct International.
Of the so-called Big Four, EY, KPMG and PwC have each ruled themselves out of the process, as a result of potential conflicts of interest and reputational issues which relate to the Sports Direct’s corporate governance, according to sources close to the story. Deloitte, the other member of the gang of four, is also thought to have opted not to participate in the process, however it remains unclear whether this is a definitive decision, as of yet.
The news comes as the Big Four comes under mounting scrutiny from the UK’s watchdog for auditors, the Financial Reporting Council (FRC), and with a proposed break-up of their UK wings still reportedly on the cards, any avoidable controversy from Sports Direct seems to have put them off the tendering process. In the meantime, the UK Government has tasked Sir John Kingman, the former Treasury mandarin, with the undertaking of a review of the FRC itself, while the competition watchdogs are also evaluating whether to launch a fresh probe into the industry.
