Beales’ auditor may face ICAEW probe

ICAEW is considering whether to investigate the auditors of failed department store chain Beales over going concern issues

The department store chain was audited by mid-tier firm Nexia Smith & Williamson, which signed off the audited accounts for year end 31 March 2019 last September, stating in the independent audit report that it had ‘nothing to report in respect of the going concern basis of accounting in the preparation of the financial statements’.

Beales went into administration on 20 January and appointed KPMG Restructuring to handle the insolvency.

As a designated audit regulator for non-listed companies, ICAEW is responsible for oversight of audit performance and compliance, and is considering a review of the auditor after concerns were raised about the group’s viability as a going concern last year and questions over why the group’s accounts were signed off by the auditor.

Firms working in the regulated area of audit are required to comply with the audit regulations and guidance.

An ICAEW spokesperson told Accountancy Daily: ‘‘We are in the early stages of our enquiry and a decision has not been made yet.’

As the relevant regulatory body we are currently making enquiries, although they are still at an early stage.’

In October 2018 the Beale Ltd parent company completed a management buyout with the shares held by Portnard Ltd and related companies being purchased by Brown Retail Holdings Ltd, a company wholly owned by the group's CEO Anthony Brown.

The company reported turnover of £48.3m for year end March 2019, with losses of £2.14m, as well as taking a one-off pension charge of £454,000 to resolve guaranteed minimum pension (GMP) equalisation.

Advisers from KPMG were initially hired by the business in December 2019 to explore possible sale and refinancing options.

Management forecasts set out in the 2019 annual report, filed last October, indicated that the company expected it would take another year to return to profitability, projecting ‘a small negative EBITDA for the year to March 2020’, although it expected to return to growth from 2021.

Specifically on going concern, the 2019 annual report stated: ‘The company is reliant on the continued support of Wells Fargo Capital Finance UK and its immediate parent company Beale Ltd.

‘On the basis of the projected trading performance and the indications of ongoing support that have been received, the directors consider that it is appropriate for the accounts to be prepared on a going concern basis’.

At the time, Beales also highlighted risks around its ‘aged stock position’, which it was addressing, as well as an industry wide downturn in womens’ fashions and online shopping.

Beales director Anthony Brown said: ‘During the last 12 months we have reviewed all our costs and have made further cost savings. We continue to review central costs and expect to make more savings over the coming 24 months as we implement a wide ranging productivity improvement strategy which we expect to deliver significant cost savings across stores and head office. We have implemented a number of significant IT capital investment programs to support these changes.’

Nexia Smith & Williamson declined to comment on the possible investigation, but were unable to confirm how long the firm had been statutory auditor.

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