‘Complexities’ force delay in Sports Direct annual results
15 Jul 2019
Sports Direct has delayed the publication of its annual results, citing the ‘complexities’ relating to its purchase of House of Fraser last August and a request from auditor Grant Thornton for more time
15 Jul 2019
The company, founded and headed by entrepreneur Mike Ashley, was due to announce on 18 July the preliminary results for the period ended 28 April 2019.
In a regulatory statement Sports Direct said it believes its accounts and their audit to be at an advanced stage, but noted: ‘However, there are a number of key areas to conclude on which could materially affect the guidance given in Sports Direct's announcement of 13 December 2018.’
The company now expects that its audited results will be published between 26 July and 23 August. Sports Direct said the reasons for the delay are ‘the complexities of the integration into the company of the House of Fraser business, and the current uncertainty as to the future trading performance of this business, together with the increased regulatory scrutiny of auditors and audits including the FRC review of Grant Thornton's audit of the financial statements of Sports Direct for the period ended 29 April 2018.’
Sports Direct bought department store chain House of Fraser in August last year, with Ashley saying he planned to turn it into ‘the Harrods of the high street’.
The company said these factors have led to a need to compile more information than in previous years for the audit of period ended 28 April 2019, which has impacted on preparations for and responses to increased challenges in connection with this audit.
The statement continued: ‘Grant Thornton has also required additional time to complete its audit work for the period ended 28 April 2019 leading to the delay in the publication of the company's preliminary results announcement.
‘Sports Direct would also note that increased regulatory scrutiny is leading to longer lead times generally for the completion of audits.’
The FRC raised concerns about Grant Thornton’s most recent audit of Sports Directs’ financial results, questioning whether Sports Direct’s stake in Debenhams should have been accounted for as having significant influence over the business, which could have meant it was worth more than was listed in the accounts. The department store, which at one time Ashley indicated he considered buying, has been in financial difficulties, going into administration and completing a company voluntary arrangement, which was approved by creditors in May.
Separately, in November 2016 the FRC announced an investigation into the preparation, approval and audit of Sports Direct’s financial statements for the year ending 24 April 2016, over concerns that an arrangement between a Sports Direct subsidiary, Sportdirect.com Retail Ltd (SDR), and Barlin Delivery Ltd had not been disclosed as a related party transaction in the company’s financial statements. The owner and a director of Barlin during the relevant period was John Ashley, the brother of Mike Ashley.
Last year the FRC won a High Court challenge to force Sports Direct to release to the regulator some 40 documents and emails relating to information provided to Grant Thornton as the company’s auditors, about the arrangements with Barlin. Sports Direct argued that these were covered by legal advice privilege.
Grant Thornton has been Sports Direct’s auditor since the company listed in 2007. The 2018 annual report noted that the company was part way through the process of undertaking an audit tender, given new requirements around auditor rotation. It shows Grant Thornton was paid a total of £1.3m in audit fees for the year, plus £100,000 for non-audit services.
Last week the FRC issued a highly critical audit quality inspection report on Grant Thornton, labelling the firm’s audit quality as ‘unacceptable’, and citing its failure to improve as a ‘deep concern’ after finding a quarter (26%) of all audits assessed over the past five years have required significant improvement.
Grant Thornton declined to comment.