Wednesday 22 January 2020 4:15 pm

Not as easy as 1,2,3: Seven accounting errors that rocked FTSE firms

Ted Baker today experienced the dubious honour of joining a list of FTSE firms that have been shaken by accounting errors in the past year.

The fashion retailer revealed an accounting error was more than twice as bad as it previously thought, knocking shares down seven per cent.

But it is by no means the worst offender of the last year. Accounting errors have sunk shares and even plunged some into hot water with regulators, who have investigated potential fraud.

And then there are the auditors, who have come under increased scrutiny after accusations of letting such accounting errors slip through. Regulators have already called for a crackdown on the Big Four. But looking at the auditors of the following seven firms, the major accountants continue to dominate.

Ted Baker

In what has already been a torrid year for the retailer, Ted Baker was today forced to reveal that an accounting error was more than twice as big as previously thought.

An independent review by Deloitte found that Ted Baker had overstated its inventory by £58m, rather than the previous estimate of £25m.

The embattled retailer’s annual report in December mentioned the issue but its auditor KPMG had concluded the misstatements were too small to affect the accounts.

It is not the first time KPMG has made a misstep with the retailer. The Financial Reporting Council (FRC) fined the accountancy firm £2m over its audits of Ted Baker in 2018 after blurring the line between its auditing and other services.

Goals Soccer Centres

Goals Soccer Centres notoriously delisted from London’s Aim market last summer after a misdeclaration of VAT left a blackhole in its accounts of more than £12m.

Its former auditor KPMG could reportedly now face legal action over its auditing of the company. Goals collapsed into administration before being bought by private equity firm, Northwind 5s.

The operator’s administrator Deloitte is reported to be chasing KPMG over the alleged misdeclaration. The Financial Conduct Authority (FCA) has launched an investigation into alleged fraud at the company. The actions of chief executive Keith Rogers and head of finance Bill Gow have also been the subject of an internal investigation.

M&C Saatchi

M&C Saatchi first disclosed accounting errors in August last year, which it said would lead to a £6.4m one-off charge. Last month an independent review by PwC found the sum had risen to £11.6m, prompting a boardroom exodus.

KPMG, which had first raised concerns about accounting controls across the firm in May 2019, resigned as the group’s auditor amid the crisis. The advertising company appointed Big Four rival PwC as its new auditor in October.

Superdry

Superdry sank to a loss last year and posted a further fall in sales, dashing hopes of a quick recovery.

The retailer also said it had been hit by a £3.9m “isolated error” related to its accounting of inventory. Chief finance officer Nick Gresham blamed the blunder on “overly complex” record-keeping.

Deloitte has been the company’s auditor since 2017.

Patisserie Valerie

Grant Thornton has come under investigation by the FRC for its audits of Patisserie Valerie between 2015 and 2017.

The bakery chain collapsed into administration in January 2019 following the shock revelation of significant fraud and a £40m black hole in its finances.

Its administrators, KPMG, later revealed that the missing money totalled £94m.

Sports Direct offered to buy the chain for £15m in February 2019 before KPMG announced it had agreed a management buyout funded bt Causeway Capital Partners for £13m.

Last summer police arrested and questioned five people over the accounting fraud at Patisserie Valerie, following a probe by the Serious Fraud Office.

RSM

The high-profile accounting blunders of the last year have shone a spotlight on the Big Four.

However, an accounting error by RSM, which Mike Ashley appointed to audit Sports Direct (now renamed Frasers Group), may spark concerns about mid-tier accounting firms.

At the start of the year, the firm misstated its own accounts by nearly £10m over two years. It led to the removal of top management including its chief executive David Gwilliam and finance chief Nigel Tristem.

RSM said that the error had been in the calculation of the provision for professional liability claims. The errors had a net impact on profit of nearly £3.8m, accounts showed.

Metro Bank

Metro Bank admitted it had underestimated the risk level of some of its commercial loans by almost £1bn in January 2019.

The Prudential Regulation Authority (PRA) flagged up inconsistencies in Metro Bank’s loanbook before it conducted a review.

The bank raised £375m in new funds to bolsters its finances in May last year. But shares crashed to a record low after it scrapped a £250m bond issue.

Former chairman Vernon Hill left the bank in October, but it remains under pressure. Analysts warned it could be loss-making throughout 2020.

Overall Metro Bank lost 91 per cent of its stock value over 2019, sinking from 2,200p to around 200p.

Share:
Tags: