Grant Thornton to finally exit Sports Direct role
Sports Direct is reportedly set to ramp up its efforts to find a new auditor, with incumbent accounting contractor Grant Thornton having confirmed it will quit the role after the retailer’s annual general meeting. While the five largest professional services firms of the UK have already ruled themselves out of the running, Mazars is understood to be preparing a conditional move for the role.
At the back-end of 2018, Grant Thornton, first announced that it would have to stand aside as the long-time auditor of Sports Direct, due to competition rules. Grant Thornton had held the role since before the controversial retail entity first floated on the London Stock Exchange in 2007, while the Partner at Grant Thornton responsible for signing off Sports Direct's accounts, had himself undertaken the work for five years, meaning he was obliged to step aside to preserve the independence of the firm's work.
The sudden development saw Mike Ashley’s sportswear chain 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. That deadline came and went, however, and by February 2019, Grant Thornton was coming under intense scrutiny for its continued auditing relationship with Sports Direct beyond the April deadline for FY19.
According to a report from Sky News, the process of finding a replacement for Grant Thornton had been made more difficult by the negative press associated with Sports Direct. With the Big Four under mounting scrutiny from the UK’s accounting watchdog, EY, KPMG and PwC ruled themselves out of the running early on, while it soon became clear Deloitte had no intention of vying for the role either. The quartet had seemingly determined the contract to be more trouble than it was worth, particularly as the Sports Direct empire was showing concerning signs entering the new financial year.
Sports Direct has been nursing a succession of losses on investments in the UK high street of late. In 2018, the increased its stake in Debenhams in 2018, fuelling speculation that it was waiting for the opportune time to acquire the department store chain, only for administrators from FTI Consulting to sell the store to its creditors, resulting in a hit of around £150 million for Mike Ashley’s company. This came shortly after an analysis by The Sunday Telegraph suggested the outspoken tycoon had accrued “a sprawling web of stakes” in rival companies, and that he may be nursing losses of more than £500 million.
Under pressure
On the back of this, Sports Direct has delayed announcing its financial results for several weeks. The firm warned in particular that it could miss profit forecasts amid uncertainty over the performance of House of Fraser, which it acquired last year. The delay came as Grant Thornton came under increased scrutiny as well, as it was put into the regulatory equivalent of special measures following 50% of its work being deemed substandard in the Financial Reporting Council’s latest annual review of quality.
It was suggested that as the auditor moved to repair its reputation, such a high profile accounting role had brought a barrage of unwanted attention. As a result, Grant Thornton was said to be likely testing every assumption in the 2019 numbers. Now, following the publication of a shocking set of results – which included a payment notice at the end of July from the Belgian tax authorities for €674 million (£605 million) – Grant Thornton has re-stated its intent to quit its role as Sports Direct auditor.
According to reports from the Financial Times, this time Grant Thornton’s withdrawal will be much quicker. The firm is said to have made the decision to resign after Sports Direct informed it of the tax bill just hours before it was due to sign off on the company’s annual results. Grant Thornton will finally step away from its role after the troubled retailer’s annual general meeting in September, the Financial Times also said, while sources at the firm reportedly confirmed the Financial Reporting Council has been informed of its plans.
While BDO, the UK’s fifth largest professional services firm, has already ruled itself out of the running, another mid-tier challenger to the Big Four’s audit dominance is said to be in line for the Sports Direct role. Mazars has supposedly approached Sports Direct about becoming its next auditor, albeit stating a number of conditions around governance in the process. Mazars recently secured a lucrative accounting gig from Goldman Sach’s UK wing – one which had previously only been held by the Big Four.
