Troubled high street café chain Patisserie Valerie has called in KPMG to help the company consider its options, after investigations found the accounting misstatements identified in October are much larger than originally estimated, with evidence of ‘devastating’ fraud and deliberate manipulation
In a statement parent company Patisserie Holdings said: ‘The work carried out by the company's forensic accountants since then has revealed that the misstatement of its accounts was extensive, involving very significant manipulation of the balance sheet and profit and loss accounts.
‘Among other manipulations, this involved thousands of false entries into the company's ledgers. It will take some time before a reliable trading outlook can be completed while the above work streams progress.’
The statement said the initial indications from the work carried out to date is that the cash flow and profitability of the business has been overstated in the past and is materially below that announced in the trading update on 12 October 2018, immediately after the company first identified problems, which was based on limited work carried out over a 48-hour period.
At the time, Patisserie Valerie suggested figures of £120m revenue for the year and earnings of £12m.
The company said it has hired KPMG ‘to assist it in carrying out a review of all options available to it in order to recover from the devastating effects of the fraud, and to preserve value for its stakeholders going forward.’
RSM has been confirmed as the company’s external auditor, replacing Grant Thornton, but Patisserie Valerie says ‘due to the fraud and attendant accounting issues it will be some time to complete a restatement of the company's accounts and prepare the audited figures to 30th September 2018’.
Since the discovery of accounting irregularities estimated at £20m, and two unauthorised bank loans, Patisserie Valerie has appointed a new CEO, a new interim CFO, a new non-executive director, a new commercial director and a new production director, as well as other management appointments.
The Financial Reporting Council (FRC) is investigating Grant Thornton’s audit of the financial statements of Patisserie Holdings for the years ended 30 September 2015, 2016 and 2017 under its audit enforcement procedure.
The regulator is also conducting an investigation under the accountancy scheme into Patisserie Valerie’s former CFO, Chris Marsh’s preparation and approval of Patisserie Holdings Plc’s financial statements and other financial information provided by Marsh.
In a further development, Lee Ginsberg, non executive director and deputy chairman of Patisserie Valerie, resigned with immediate effect on 17 January. He had been on the board since May 2014. Ginsberg is an ICAEW member and qualified with Price Waterhouse in South Africa. He is also a non-executive director and chair of the audit committee at Reach PLC, formerly Trinity Mirror plc.
The latest FRC notification list about ongoing audit inspections included a review of the audit of Patisserie Holdings, the owners of Patisserie Valerie, by Grant Thornton, which the FRC did not flag as requiring further probes. This is likely to have reviewed the last year end reports for the company, after the annual report and accounts were filed at Companies House in May 2018. An FRC spokesperson confirmed that the audit inspection was 'for audits completed in the last quarter'.
Report by Pat Sweet, additional reporting Sara White