Accountancy firm Grant Thornton has quit its role as auditor to Mike Ashley’s Sports Direct weeks after the chaotic release of the retail empire’s annual results – sending shares plunging.
It is a fresh headache for the company which revealed in the results that it was facing a tax demand of more than £600m from Belgian authorities and laid bare the “terminal” scale of problems at House of Fraser – the struggling department store it bought last year.
Sports Direct has been sounding out “big four” auditors about taking over what it argues is an increasingly complex job checking its books but has had trouble doing so and until this week was seeking to reappoint Grant Thornton for another year.
But in a joint statement issued on Wednesday with the accounting firm it said: “GT’s review of its client portfolio alongside SD’s future intentions on engagement of a Big 4 auditor has led to a decision by GT to not seek reappointment as SD’s auditor.”
Shares fell 10%.
Sports Direct said at the time of its much-delayed results in July that it had held “early discussions” with Grant Thornton’s larger rivals – the big four accountancy firms that dominate the auditing work for major listed companies – but that these had “thrown up some barriers”.
Deloitte, KPMG and EY had pointed to various conflicts of interest while PwC had shown a “reluctance to engage” based on the ownership structure of the company – which is majority owned by Mr Ashley, also chief executive.
The decision by Grant Thornton – which has audited Sports Direct since 2007 – comes against a background of increased scrutiny of accountants’ work following a string of major corporate collapses such as Carillion and BHS.
Grant Thornton has been under the spotlight over its audit work for Patisserie Valerie, which went into administration after a major accounting scandal.
The firm was named the worst performer in an annual review by the Financial Reporting Council, the accounting watchdog, in July.
Its decision to quit its role with Sports Direct – with effect from 11 September – comes after the retailer last week announced its latest acquisition, buying fashion chain Jack Wills out of administration.
In the last year, Mr Ashley has also engineered takeovers of Evans Cycles and Sofa.com but lost out in a bitter battle to take control of Debenhams.
Sports Direct took over House of Fraser last year with Mr Ashley saying he aimed to turn it into the “Harrods of the high street”.
But the department store business recorded an operating loss of £54.6m for the year and the tycoon warned it may see further closures – with five stores already shut since the takeover.
Michael Murray, one of Mr Ashley’s key lieutenants – who is engaged to his daughter – insisted in an interview with Sky News last week that Sports Direct was “definitely not a business in crisis”.