Accounting watchdog fines Laura Ashley auditor over “serious” breaches

UHY Hacker Young, the auditor of the fashion retailer Laura Ashley which fell into administration amid the pandemic, has been “severely reprimanded” by the Financial Reporting Council (FRC) over “serious” breaches.

The FRC has imposed sanctions against UHY Hacker Young and Martin Jones, audit engagement partner, in relation to the statutory audits of the financial statements of Laura Ashley Holdings for the financial years ended June 30, 2018, and June 30, 2019.

“The breaches in this case were serious and spanned two audit years affecting multiple areas of the audits, some which were fundamental to the proper conduct of audit,” Jamie Symington, deputy executive counsel at the FRC, said in a statement.  

“These included the Auditors’ failure to adequately challenge or investigate management’s use of the going concern assumption – i.e. that the company would remain in business for the foreseeable future – despite this being identified as a significant risk for the FY2018 Audit due to the state of the retail sector.

“UHY further failed to respond appropriately to criticism of their work by the FRC’s Audit Quality Review team, leading to a repeat in the FY2019 Audit of certain breaches which occurred in the FY2018 Audit.”

It was confirmed on Wednesday that UHY Hacker Young was fined £300,000 and Martin Jones £45,000. UHY Hacker Young also agreed to not carry out any new audits of public companies for at least two years following the decision by the FRC.

In June 2019, Laura Ashley had 155 stores in the UK and employed more than 2,700 people.

However, the group’s revenue, operating profit, profit before tax and profit after tax consistently declined between FY2016 and FY2019, and the group’s loss after tax increased ten-fold from £1.4m in FY2018 to £14m in FY2019.

The FRC found the audit reports for FY2018 and FY2019 were “unmodified and noted no material uncertainty related to the use of the going concern assumption”.

In March 2020, the retailer filed for administration, citing the impact of the pandemic on its business as the reason.

The FRC has highlighted that Laura Ashley did not suggest, and Executive Counsel does not now suggest, that the administration of the retailer was caused by the breaches.

Both UHY and Jones have admitted serious breaches of relevant requirements, including determination of audit materiality in 2018, going concern assessment and revenue.

Sanctions against UHY and Jones were reduced by 27.5% due to their admission and early disposal, meaning UHY was fined £217,500 and Jones £32,625.

 “We recognise that the audits relating to Laura Ashley Holdings PLC (LAH) for the financial years 2018 and 2019 fell below the high standards that we, as a firm, set for ourselves,” UHY Hacker Young said in a statement.

“However, as confirmed by the FRC’s findings, the insolvent administration of LAH was not caused by the issues identified by the regulator but was attributed by LAH’s administrator to the impact of the Covid-19 pandemic on the Group’s business.”

UHY has said it has implemented a “more targeted and intensive training regime” for members of its audit teams.

“We are confident that the numerous and wide-ranging improvements we have put in place following this review have significantly raised the quality of the audits that we undertake and have addressed the issues identified by the FRC,” UHY Hacker Young added.

“We have also informed the FRC of our voluntary decision to refrain from conducting new statutory audits of Public Interest Entities (as defined under current legislation), for at least two years. Our decision not to take on new audit work of such companies does not impact our very active and successful AIM and other listed markets audit practice.”