Grant Thornton handed £2m fine by FRC over “fundamental” failings in Sports Direct audit
The judgement concludes more than five years of probes into the audit firm’s accounts
Challenger firm Grant Thornton has today been issued a £2.05m penalty by the Financial Reporting Council (FRC) over “serious failings” in its auditing of UK retailer Sports Direct.
According to the watchdog, the sanctions concern Grant Thornton’s oversight of “basic and important requirements” in its 2016 and 2018 audits of the retailer.
In relation to the 2016 audit, the firm has been fined £1.7m for its failure to investigate and disclose the relationship between Sports Direct and delivery company Barlin Delivery Limited (referred to as “Delivery Company A” in the FRC’s report).
The FRC has also noted Grant Thornton’s failure to obtain sufficient evidence regarding the retailer’s 20% online revenue increase in 2018, resulting the firm being handed a further £350,000 fine.
The fines issued today conclude a more than five-year enquiry into the firm’s accounts.
“We are pleased to now conclude these long-running matters, which date back to 2016,” a spokesperson for Grant Thornton UK LLP said.
“Having invested significantly in the quality of our audits since this time, we have seen a marked improvement in our results and are confident that the issues identified by the FRC’s investigations, whilst limited to discrete areas of the audits, are not reflective of the work we produce today.”
The FRC has also issued a number of non-financial sanctions against Grant Thornton, including a requirement for the firm to submit reports on whether thematic reviews and changes to audit methodology are resulting in increased audit quality and auditor judgement.
The firm has also received a “severe reprimand”.
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 package of financial and non-financial sanctions imposed by the FRC on the auditors in this case will help to drive improvements at the firm and the wider industry.”
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In addition, the watchdog has ordered former Grant Thornton partner and auditor Philip Westman to pay £120,000 in fines for his involvement in both the 2016 and 2018 audits.
In April, Sports Direct’s parent company Frasers Group issued a statement to the London Stock Exchange, acknowledging the FRC’s probes and stating that “at no time has it been part of this investigation”.
“There has never been any suggestion of wrongdoing by Frasers Group during this investigation,” it added.
Mike Ashley, the former Newcastle United FC owner, remains the majority shareholder in the retail group. He recently oversaw the acquisition of several other high-street chains, including Jack Wills, Studio Retail Group, and Missguided.