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Sports Direct urgently seeks new auditor

Following confirmation that Grant Thornton is throwing in the towel as Sports Direct’s auditor, the company released a joint statement from the two which reiterated Sports Direct’s desire to seek a Big 4 auditor.

The statement said: “As referred to in the Chief Executive's Report and Business Review in SD's Annual Report and Accounts for the period ended 28 April 2019, SD has a longer term aim of looking to engage a Big 4 auditor in the future. In line with the audit profession as a whole reviewing their client portfolios for, amongst other reasons, audit profitability, during a period of increased regulatory scrutiny, GT's review of its client portfolio alongside SD's future intentions on engagement of a Big 4 auditor has led to a decision by GT to not seek reappointment as SD's auditor.”

The company also added that the board was ‘comfortable with SD's accounts for the period ended 28 April 2019 and believe a fully robust audit was carried out of SD's financial statements’.

Nevertheless, it appears Sports Direct is having difficulty in fulfilling its ambition of landing a Big 4 auditor. Shares have slumped in the wake of Grant Thornton’s withdrawal and the clock is ticking. The company has barely a month to find a replacement in time for its AGM.

In the company’s annual report, CEO Mike Ashley said: “We do not believe a firm outside of the Big 4 will potentially be able to cope with such an audit in the future.”

However, he also noted: “Our early discussions with the Big 4 have thrown up some barriers; Deloitte who do our tax compliance and advisory work cannot perform audit work at the same time and thus would currently be unable to tender. KPMG have indicated conflicts of interest based on an existing portfolio of clients, however we do not believe based on our understanding of Big 4 independence procedures that this is insurmountable. EY had some reluctance based on their close proximity to the House of Fraser administration which they ran, however as time has passed we do not believe this should be a barrier when a tender process is run. PwC have had some widely publicised fines in recent years and we understand there is a reluctance to engage based on our ownership structure.” Ashley went on to be critical, saying ‘…the big 4 have been more than happy to audit’ the likes of Carillion.

The company now faces the prospect of breaking London Stock Exchange regulations if it has no official auditor in place and has, according to The Financial Times, approached the government regarding its options. Andrea Leadsom MP, Secretary of State for Business, Energy and Industrial Strategy, has the power to appoint an auditor to a public company if it cannot do so itself.

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