Audit news round-up - Sports Direct saga continues, GE 'accounting fraud'

Sports Direct saga continues

Questions surrounding the future of audit at Sports Direct continued this week following failed attempts to engage with one of the Big Four.

Mike Ashely’s high street giant is now turning to mid-tier firms, and has reportedly approached BDO and Mazars about a possible tender process.

The Financial Times has reported that BDO was approached by Game Digital to start a dialogue with Sports Direct but declined the invitation and ruled itself out of the tender process last year citing reputational risk. BDO declined to comment on the latest reports suggesting they have been approached by Ashley.

Mazars have reportedly held “more than one conversation” with Sports Direct since the announcement that Grant Thornton would be quitting. However, were Mazars to pitch for the contract, they could upset their rival audit firms, with some believing that the audit profession wants the situation to require government intervention.

Last week, the retailer saw their then-auditors Grant Thornton announce in a joint statement that it would be quitting the role it has filled since 2007.

This announcement led to questions about who will fill this gap, with Sports Direct saying it intended to engage one of the Big Four.

The joint statement said: “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, Grant Thornton’s review of its client portfolio alongside Sports Direct’s future intentions on engagement of a Big Four auditor has led to a decision by Grant Thornton to not seek reappointment as Sports Direct’s auditor.”

However, none of the Big Four seemed interested, with Deloitte, EU, PwC and KPMG all citing conflicts of interest as a reason they could not audit Sports Direct.

This led to Sports Direct asking the government how it would react if it was unable to appoint an auditor, which would be the first time a company listed on the stock exchange has been unable to do. This raised concerns among the Big Four that one of them could be forced to audit Sports Direct, which is within the powers of Andrea Leadsom, secretary of state for the department of business.

However, Ashely’s approach to the likes of Mazars and BDO may have dampened these fears for now, as it shows Sports Direct is willing to engage a firm outside of the Big Four that does not have a conflict of interest with the retailer.

GE Shares fall after allegation of accounting fraud

The end of last week saw General Electric shares fall after the financial investigator who raised the alarm over Bernard Madoff’s Ponzi scheme, claimed there was an accounting fraud “bigger than Enron and WorldCom combined”.

GE dismissed Harry Markopolos’ claims, but were unable to prevent its shares falling as much as 15 per cent after a 170-page report from Markpolos was published.

The allegation says that the conglomerate’s accounts hide a $38bn in its insurance and oil field services businesses. My Markopolos said: “I think that they’re a bankruptcy waiting to happen.”

GE’s chief executive Larry Culp said that the report, an advanced copy of which was provided to a hedge fund, was “market manipulation”, saying is a statement: “The fact that he wrote a 170-page paper but never talked to company officials goes to show that he is not interested in accurate financial analysis but solely in generating downward volatility in GE stock so that he and his undisclosed hedge fund partner can personally profit.”

Markopolos’s warnings about Bernard Madoff’s Ponzi scheme went largely unfounded in 2009.