Sports Direct faces being left without an auditor after Grant Thornton told the retailer it would not apply for reappointment.
The decision threatens to leave Sports Direct high and dry as all of the Big Four firms have indicated they are reluctant to take on the role.
The Financial Times reported that Sports Direct has been in discussions with the government and regulators about the possibility it is not able to find an auditor.
In that case, the Business secretary has the powers to make an appointment.
Regulator the Financial Reporting Council said: “The Companies Act sets out the actions required, including obligations on company directors and auditors, where an auditor resigns or does not intend to seek re-appointment. The FRC is monitoring the situation, but has no powers to make auditor appointments.”
Sports Direct said this morning it received notice yesterday from Grant Thornton that it intended to stand down from the role “following a review of its client portfolio”.
Sports Direct and Grant Thornton later issued a joint statement to the stock exchange reiterating that the retailer “has a longer term aim of looking to engage a Big Four auditor in the future”.
“In line with the audit profession as a whole reviewing their client portfolios for, amongst other reasons, audit profitability, during a period of increased regulatory scrutiny, Grant Thornton’s review of its client portfolio alongside Sports Direct’s future intentions on engagement of a Big Four auditor has led to a decision by Grant Thornton to not seek reappointment as Sports Direct’s auditor,” the statement continued.
The auditor had reportedly decided to sever ties with the retailer following unprecedented delays to the publication of its annual results last month, coupled with the revelation Sports Direct owed Belgian tax authorities €674m (£625m).
Embarrassingly for Sports Direct, in its annual report published yesterday, it said reports that it was set to run an audit tender in 2019 were incorrect.
It said it had spoken to Grant Thornton and it intended to reappoint the firm at its next annual general meeting.
In the report, Sports Direct said it had been in contact with the Big Four about a possible future tender process.
“Our early discussions with the Big 4 have thrown up some barriers,” the report said.
According to the report, Deloitte is conflicted by work it already does for Sports Direct, KPMG said its existing portfolio of clients rules it out for conflict reasons, EY said it was reluctant due to its role on the House of Fraser administration and PwC said it was reluctant to engage because of recent fines it had received and reluctance about the company’s ownership structure.
Sports Direct said in its report: “We do not believe a firm outside of the Big 4 will potentially be able to cope with such an audit in the future.”
A spokesperson for Grant Thornton said: “I can confirm that following a review of our client portfolio, we have notified Sports Direct International PLC of our intention to cease in our role as statutory auditors from 11 September 2019.”
Sports Directs shares fell 9.67 per cent in afternoon trading to 214.8p.