The popular café has once again come under scrutiny after admitting “thousands of false entries into the company’s ledgers.”
This comes just months after Patisserie Valerie was on the brink of collapse following the gap discovered on its accounts.
Patisserie Valerie spoke to the London Stock Exchange on Tuesday, saying the work by forensic accountants shows a “misstatement of its accounts was extensive, involving very significant manipulation of the balance sheet and profit and loss accounts.”
This week the group also revealed it had hired accountants from Big Four firm KPMG, likely for the purpose of restricting or insolvency.
The cake business was actually given a standstill of its banking facilities until this last Friday, which aimed to protect it from action to recover debts. It is in talks with its lenders to extend the agreement, as the company had previously specified a standstill arrangement until last year.
What does this mean for accountants?
Gavin Pearson, partner and ahead of forensic accounting at business advisory firm Quantuma said: “It is clear from the announcement that the “manipulation” of the Patisserie Valerie accounts was extremely extensive, given that even after forensic accountants have been investigating for around three months, the true position has still not been established.
“In particular, the reference to “thousands of false entries” suggests a long, complex and well-disguised fraud. The fact that the cash flow and profitability is now likely to be below that announced on 12 October suggests that the position is likely to be worse than was anticipated when investors determined to inject new funds into the company following identification of the fraud.
“It is also interesting to note that KPMG has been hired to carry out a “review of all options available”, which may suggest that the extent of the fraud may continue to threaten the future viability of the company. This is likely to be of significant concern to stakeholders in the business, who it appears will need to wait some time to find out exactly what has occurred.
“This update on the extent and impact of the fraud may also be of particular interest to those investigating Grant Thornton’s historic role as auditor of Patisserie Valerie.”
Simon Bittlestone, CEO of Metapraxis, comments on the news that Patisserie Valerie has revealed it significantly manipulated its balance sheets: “This is categoric proof that Patisserie Valerie’s management information was simply not good enough.
“Its accounting system had become so complex that it hid any understanding of the underlying business performance. The fact is that if those not implicated in the scandal had effective management information that allowed them to cut through the noise, they would have spotted such colossal mistakes far earlier.
“To avoid making the same mistakes, companies need to promote a greater collaboration between financial and management accounting. As it stands, the stories are becoming too distorted and the finance skill sets too disparate. When they start complementing each other, the board will have heightened understanding of the entire business and will know when something’s not quite adding up.”