Grant Thornton, a former auditor for Sports Direct, now called Frasers Group, has been fined 1.3 million pounds by the Financial Reporting Council (FRC) due to “serious failings” when auditing the retailer’s accounts.
The case relates to Grant Thornton’s auditing of Sports Direct’s financial statements for the years ended 2016 and 2018.
Additionally, Philip Westerman, a former partner of the accounting firm, was also handed a fine of almost 80,000 pounds.
According to FRC findings, Westerman and Grant Thornton, which stepped down as the retailer’s auditor in 2019, had failed to disclose a relationship between Sports Direct and a company owned by Mike Ashley’s brother, for which both parties had identified the two companies as “an area of significant risk”.
In its report, the organisation said: “There were a number of relevant factors which should have prompted the respondents to consider and follow up matters further, but they did not.”
“The audit failings in this case were serious and relate to fundamental auditing standards,” said the FRC’s deputy executive counsel Jamie Symington, in a release.
Symington continued: “It is particularly important that auditors follow up with due rigour where they have identified potential related party transactions as a significant audit risk. Auditors must adopt a mindset of professional scepticism, and exercise good judgement based on sufficient and properly documented evidence.”
In a response to the FRC’s decision, Frasers Group issued a statement to its investors noting that the council’s findings had “no criticisms” of the group or its past financial statements.
It added that although the group “believes it was technically correct in its disclosure of related party transactions”, it recognised that further disclosure could have helped to avoid this aspect of the investigation.