The Financial Reporting Council (FRC) has commenced an investigation into the audits by Deloitte LLP of the financial statements of national car dealership Lookers plc for the years ended 31 December 2017 and 2018
The decision was made at a meeting of the Conduct Committee on 23 February 2021.
This follows the announcement last year that Lookers had uncovered potentially fraudulent transactions in one of its operating divisions. This led to a misstatement in the accounts which showed a total of £25.5m of non-cash adjustments were necessary to correct misstatements in profit before tax figures. The adjustments reduced profit before tax by £10.9m in 2019 and £7.2m in 2018, with the balance cumulatively decreasing by £7.4m in 2017 and earlier.
A subsequent investigation by Grant Thornton initially identified £19m of non cash adjustments to previous years’ reporting, and in August 2020 Lookers said the scope of the audit had been expanded in light of the findings.
In relation to the accounting issues, at the time Lookers said these arose ‘from weaknesses in the design and implementation of policies and procedures, an insufficiently resourced and skilled finance function and instances of failure to follow policies and procedures where they existed’.
The investigation will be conducted by the FRC’s Enforcement Division under the Audit Enforcement Procedure.
Big Four auditor Deloitte resigned from the Lookers audit account in June 2020 after 14 years auditing the company. The company is now audited by BDO.
The announcement of the FRC audit investigation follows the decision by the Financial Conduct Authority (FCA) earlier this month to close its investigation into Lookers Motor Group Limited, the Group's FCA regulated entity, for the possible mis-selling of regulated products, and associated issues relating to potential customer detriment from January 2016 to June 2019.
The FCA said that it would not apply any sanction against the Group in relation to the matters under investigation. However, the FCA made its concerns clear relating to the historic culture, systems and controls of the Group. The Board fully accepted the FCA's comments and added that it was committed to continue the progress made to date in transforming both the company culture and the customer experience.
Lookers said it had already invested in a major remediation plan, including new systems, controls and process improvements, and remained fully committed to the ongoing investment programme.