Britain’s accounting watchdog has issued a “severe reprimand” to the auditor of Laura Ashley, after it failed to highlight risks over the fashion and homeware chain’s future in two reports before its collapse.
The Financial Reporting Council (FRC) said it had fined UHY Hacker Young £300,000, and imposed other sanctions against the firm, relating to its audits of the retailer, which slid into administration during the pandemic.
An audit engagement partner at the firm, Martin Jones, was also fined £45,000 for the audit breaches and ordered not to sign any statutory audits for public interest entities for two years.
The FRC said its sanctions related to audits of Laura Ashley’s financial statements for the financial years ending on 30 June 2018 and 30 June 2019, which were signed by Jones.
The retailer’s revenue and profits “consistently declined” from mid-2016 until its collapse four years later. Meanwhile its loss after tax increased 10-fold from £1.4m in 2018 to £14m in 2019.
Despite this, the 2018 and 2019 financial year reports were not modified, the FRC said, and the auditors did not note any material uncertainty over whether the retailer would be able to continue operating.
Laura Ashley, which was listed on the London Stock Exchange, had 155 UK stores in 2019 and employed more than 2,700 people. It fell into administration in March 2020, as Covid swept through Britain.
The company had previously been seeking a £15m emergency loan to stave off its collapse, but blamed the pandemic for thwarting rescue talks.
The FRC said the audit breaches by UHY Hacker Young did not cause Laura Ashley’s administration, but the audits “failed in their principle objective” of providing “reasonable assurance about whether the financial statements as a whole were free from material misstatement”.
The fines imposed on UHY Hacker Young and on partner Martin Jones were both discounted by 27.5% for admissions and early disposal. UHY was also ordered to pay the executive counsel’s costs for the investigation.
The firm and Jones voluntarily decided during the investigation to withdraw temporarily from undertaking new statutory audits of public interest entities, and agreed with the FRC that this would last for at least two years.
Jamie Symington, the FRC’s deputy executive counsel, said the breaches as were serious and “included the auditors’ failure to adequately challenge or investigate management’s use of the going concern assumption – ie that the company would remain in business for the foreseeable future – despite this being identified as a significant risk”.
UHY Hacker Young said it recognised that two audits fell below the firm’s own standards.
“We carried out a full external review of our audit control procedures and of our audit compliance and quality systems,” the firm said, adding it had enhanced its training and technical team and implemented a more targeted and intensive training regime for its audit teams.
“We are confident that the numerous and wide-ranging improvements we have put in place following this review have significantly raised the quality of the audits that we undertake and have addressed the issues identified by the FRC.”