Sports Direct –UK Annual Results Report Delay

A highly unusual situation involving the production of a UK listed company’s annual accounts occurred in late July. The publication of the results had already been delayed once earlier in the month.

Ten hours after the retailer had promised to release its results:

  • the company disclosed that it had a 674 euro tax liability in Belgium that had not been communicated to its auditors, Grant Thornton, until hours before the auditors had to sign off the accounts. The new Finance Director described the tax demand as without merit.
  • Jon Kempster, the finance director resigned
  • Grant Thornton stated to the Financial Reporting Council (FRC) that after the AGM in September 2019 they would no longer audit Sport Direct’s accounts
  • Shares prices fell by 4%

Earlier in the month the company’s head of retail, Karen Byers and the company secretary Cameron Olsen left the company. The Financial Reporting Council (FRC) is currently investigating why payments made by Sports Direct to a company run by Mike Ashley’s brother were not described as a related party transaction. Mark Ashley is CEO of Sports Direct.

The resignation of Grant Thornton leaves a high profile listed company struggling to appoint an auditor.

  • Deloittes has ruled itself out of taking over the audit due to the advisory work it currently provides Sports Direct.
  • KPMG has stated that conflicts of interest based on an existing portfolio client means that they are unable to provide audit services to the firm.
  • EY has announced that due to its close proximity to House of Fraser administration that it is reluctant to audit the accounts.
  • PWC has announced that it is reluctant to engage with Sports Direct due to its ownership structure.
  • BDO has cited reputational risk as the reason for not being interested in auditing Direct Sport.
  • Mazars has many conditions for the tender process.

In the end, the UK Department of Business may need to use its powers and select an auditor for the listed company.

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