The UK’s auditors will be overseen by a new regulator (Dominic Lipinski/PA)
(Picture: PA Archive)Regulators have handed down more than £2.1 million in fines to Grant Thornton and one of its auditors over “serious failings” linked to oversight of Sports Direct International’s accounts.
The Financial Reporting Council (FRC) fined Grant Thornton a total of £2.05 million for poor oversight of the 2016 and 2018 audit, although this was reduced to just over £1.3 million due to mitigating factors, including early admissions of errors by the firm.
Similarly, Philip Westerman, formerly a partner at grant Thornton, was fined £120,000, reduced to £79,575 for similar reasons.
The FRC said its findings in the case of Sports Direct, now Frasers Group, relate to “basic and important requirements” that are designed to ensure robust and effective audits.
“As a result of the adverse findings, both the 2016 and 2018 audits failed in their principal objective of providing reasonable assurance that the 2016 & 2018 financial statements were free from material misstatement,” the FRC said.
In terms of the 2016 audit, the FRC said Grant Thornton and Westerman failed to assess whether Sports Direct’s financial statement contained the necessary disclosure about the fact its financial position could have been affected by its relationship with a delivery company, referred to as Delivery Company A in the ruling.
“Whilst the respondents identified related parties as an area of significant risk, they failed to treat with professional scepticism management’s assertion that Delivery Company A was not a related party to Sports Direct International (SDI),” the FRC added.
It also said that Grant Thornton “failed to evaluate whether the overall presentation of the relationship between SDI and Delivery Company A in the financial statements met reporting requirements”.
For the 2018 audit, the FRC said that Grant Thornton and Westerman failed to obtain sufficient evidence or conduct sufficient evaluation of the firm’s inventory, which was a “highly material amount” at £162.2 million, and that while the respondents identified website sales as an area of significant risk, there was insufficient audit documentation linked to this revenue stream.
The FRC acknowledged that both Grant Thornton and Westerman had provided “significant co-operation and made early admissions” in relation to both audits, and that Grant Thornton had taken remedial action to “prevent similar breaches in the future”.
It will report on the efficacy of these changes to the FRC as part of its non-financial sanctions.
Jamie Symington, deputy executive counsel to the FRC, said: “The audit failings in this case were serious and relate to fundamental auditing standards.
“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.”
The FRC stressed its findings were about Grant Thornton and Westerman, and that it made no findings about Sports Direct International or Sportsdirect.com Retail Limited.
Frasers Group said: “As is made clear in the FRC’s Final Decision Notices, there are no criticisms of Frasers Group, no issues in relation to Frasers Group’s historical financial statements and no findings that there were any undisclosed related party transactions within the Group.”
