Another retailer's auditor fined over failings, this time for Sports Direct
Another day, another fine and severe reprimand for a retailer’s auditor. Grant Thornton has been fined £1.3 million for “serious failings” in basic auditing of sportswear retail giant Sports Direct, the UK’s Financial Reporting Council said. It follows a similar ruling last week by the accounting regulator for Laura Ashley before it failed in 2020
The latest findings relate to Grant Thornton’s audits of Sports Direct International (now Frasers Group), in 2016 and 2018. The FRC “severely reprimanded” Grant Thornton, which had audited Sports Direct’s accounts since the retailer’s stock market float in 2007. Philip Westerman, the partner in charge of the audits who no longer works for the firm, was also handed an £80,000 fine.
In relation to the failings of the 2016 audit, the FRC investigation focused on Grant Thornton’s failure to disclose a firm referred to as 'Delivery Company A' as a related party to controlling Sports Direct shareholder Mike Ashley in the accounts. The FRC said that Grant Thornton, the UK’s sixth-biggest accountancy firm, “failed to treat with professional scepticism management’s assertion that Delivery Company A was not a related party”.
In relation to the 2018 audit, the FRC was investigating work relating to an inventory provision of £162m and website sales, which accounted for a fifth of total sales, both of which Grant Thornton had highlighted as areas of “significant risk”.
“The respondents failed to obtain sufficient appropriate audit evidence, evaluate whether information provided by SDI was sufficiently reliable, or to prepare sufficient audit documentation commensurate with the risk in relation to these two areas of the audit,” the FRC said.
“The audit failings in this case were serious and relate to fundamental auditing standards,” said Jamie Symington, the deputy executive counsel to the FRC.
“It is particularly important that auditors follow up with due rigour where they have identified potential related party transactions as a significant audit risk. Auditors must adopt a mindset of professional scepticism, and exercise good judgment based on sufficient and properly documented evidence.”
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