Grant Thornton fined for ‘serious failings’ in Sports Direct audit

‘There are no criticisms of Frasers, no issues in relation to Frasers’ historical financial statements’

GRANT Thornton has been hit with a £2m fine by the accounting watchdog after failing to challenge bosses at Sports Direct about its relationship with a delivery company controlled by Mike Ashley’s brother.

Britain’s sixth biggest accounting firm received the penalty after the Financial Reporting Council (FRC) uncovered “serious failings” in its 2016 and 2018 audits of Sports Direct International, the eponymous retailer’s parent company, which is now called Frasers Group.

The breach related to the failures of Grant Thornton and Philip Westerman, its partner leading the audits, to establish that “Delivery Company A”, a group involved in many of Sports Direct’s transactions, was a related party to senior members of the company.

The FRC said that although Grant Thornton identified related parties as “an area of significant risk” for the audit, they failed to treat with “professional scepticism” Sports Direct bosses’ assertion that “Delivery Company A” was not a related party of Sports Direct.

It added: “There were a number of factors which should have prompted the respondents to consider and follow up matters further, but they did not.”

In 2016, the Financial Times reported that “Delivery Company A” was actually Barlin Delivery, which was controlled by John Ashley, the brother of the Sports Direct founder. The FRC investigation focused on Grant Thornton and made no findings about Sports Direct itself, the watchdog said.

It added: “As a result of the adverse findings, both the 2016 and 2018 audits failed in their principal objective of providing reasonable assurance that the 2016 and 2018 financial statements were free from material misstatement.”

The fines for Grant Thornton and Mr Westerman were reduced from £2m to £1.3m and from £120,000 to £80,000 for admissions of the failings. Mr Westerman has since left Grant Thornton.

Grant Thornton 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 are not reflective of the work produced today.”

Frasers said that while it still believed it was “technically correct in its disclosure of related party transactions”, it added that “with hindsight, further disclosure within the accounts might have avoided this aspect of FRC’S investigation”. It also said: “There are no criticisms of Frasers, no issues in relation to Frasers’ historical financial statements and no findings that there were any undisclosed related party transactions.”