The UK’s Financial Reporting Council (FRC) has issued a Final Settlement Decision Notice under the Audit Enforcement Procedure and imposed sanctions against UHY Hacker Young LLP (UHY) and audit engagement partner Martin Jones. This is in relation to the statutory audits of the financial statements of Laura Ashley Holdings (LAH) for the financial years ended 30 June 2018 and 30 June 2019.
LAH’s shares were listed on the main market of the London Stock Exchange. As of 30 June 2019, LAH had 155 UK stores employing over 2,700 people. LAH’s revenue, operating profit, profit before tax, and profit after tax consistently declined between FY2016 and FY2019. LAH’s loss after tax increased ten-fold from £1.4m ($1.67m) in FY2018 to £14m in FY2019. However, the audit reports for FY2018 and FY2019 were unmodified and noted no material uncertainty related to the use of the going concern assumption.
On 23 March 2020, administrators were appointed to LAH and various subsidiary companies. The impact of the Covid-19 pandemic was cited by LAH as the reason for the administration. LAH did not suggest, and the Executive Counsel of the FRC does not now suggest, that the administration of the LAH was caused by the breaches of Relevant Requirements by UHY in its relevant audits.
FY2018 Audit was the first audit for which UHY and Jones were the Statutory Audit Firm and Statutory Auditor of LAH. UHY and Jones were responsible for forming an opinion as to whether the FY2018 and FY2019 financial statements showed a true and fair view and had been properly prepared in accordance with the Companies Act 2006 and International Financial Reporting Standards.
UHY and Jones have admitted serious breaches of Relevant Requirements, which affected nine areas of the FY2018 Audit and six areas of the FY2019 Audit. Audit areas included determination of audit materiality (FY2018 only), going concern assessment, and revenue. Due to these breaches, the FY2018 and FY2019 Audits failed in their principal objective to obtain reasonable assurance about whether the financial statements as a whole were free from material misstatement.
Sanctions imposed reflect that UHY and Jones voluntarily decided during the investigation to withdraw temporarily from undertaking new Statutory Audits of Public Interest Entities (PIE) and are resigning from relevant statutory audit engagements.
As well as this, they have voluntarily offered an undertaking to the FRC not to conduct Statutory Audits of Public Interest Entities for a period of at least two years from the date of the Proposed Settlement Decision Notice and until such point in the future as the registration body for PIE Statutory Audit registration is satisfied that they have the necessary competence to conduct high quality Statutory Audits of PIE in compliance with Relevant Requirements.
The following sanctions have been imposed against UHY:
- A financial penalty of £300,000 – this is adjusted for aggravating and mitigating factors, and discounted for admissions and early disposal for 27.5% – the financial penalty payable is £217,500
- An order that UHY shall not accept appointment as Statutory Auditor to any PIE for which it is not currently acting as Statutory Auditor, until the later of: (i) 11 May 2024; and (ii) such time as the prevailing registration body for PIE Statutory Audit registration is satisfied that UHY has the necessary competence to conduct high quality Statutory Audits of PIEs in compliance with Relevant Requirements.
- A severe reprimand
- A declaration that the FY2018 and FY2019 Audits reports signed on behalf of UHY did not satisfy the Relevant Requirements, as set out in the Final Settlement Decision Notice
UHY have also been required to pay Executive Counsel of the FRC’s costs of the investigation.
The IAB has reached out to UHY for comment and will update with any response.