Allied and Andersen

Arthur Andersen’s future as auditor to Allied Carpets is in doubt after the firm released a report into the retail giant’s awry accounting policy.

Allied finance director David Pout resigned on 19 August in the wake of its recent #3m accounting irregularities scandal. Allied said it had paid him #221,000 in compensation.

Allied ended an embarrassing month of speculation last week after publishing the findings of a joint internal investigation with Andersens. The report confirmed irregularities amounting to #3m in its preliminary results.

A spokesman for Allied confirmed Andersen’s future as auditor was under consideration.

Allied’s prelims, for the year ended 27 June, show that early booking of sales resulted in an exceptional charge of #3m on a turnover of #264m – up 3% from last year. Excluding this exceptional item, operating profit was down 17% to #13m.

Allied, which includes Harris Carpets and Carpetland, said it became aware of accounting irregularities on 6 July, after Andersen raised the concerns of a whistle-blowing Allied employee.

The controversy stems from the ‘widespread practice’ of sales staff booking orders as sales before any goods have been delivered – something that is against official company policy. DIY retailer Wickes and engineering group Powerscreen lost millions of pounds from similar breaches in internal controls over the last year.

A week after the problem arose, the Allied board requested the London Stock Exchange to suspend share dealings in the company.

Last week, Allied’s finance director David Pout and retail operations manager Steve Barber resigned, both with hefty compensation.

The Andersen report judged the carpet group’s official accounting policy to be ‘prudent’, and said: ‘In almost all cases, these goods had been fully paid for. This practice resulted in recognition of sales and profit earlier than group policy provides for, but no loss of cash to the group.’

The report added that there had been no financial gain involved in the accounting irregularities. The Allied board outlined four actions to be taken in the wake of the accounting irregularities.

These are: a strengthened financial director presence in operations, outsourcing of internal audit, modification of management reporting and improved stocktaking.

Related reading