Buildings materials group SIG has begun an immediate search for a new external auditor, after shareholders at its annual general meeting (AGM) voted by a large majority against the reappointment of Deloitte, following on from the discovery earlier this year of historic profit overstatements at the FTSE 250 business
In a highly unusual move, more than 78% of votes called for Deloitte to be sacked, with 395,827,122 votes against the re-appointment and 108,962,143 in favour.
In a statement, SIG said: ‘In relation to today's [10 May] AGM, the board recognises that there has been a vote against resolution 11 (re-appointment of the external auditors) and a substantial number of votes cast against resolution 1 (approval of the annual report and accounts).
‘The board takes the views of shareholders extremely seriously, and takes this opportunity to inform shareholders that it is committed to carrying out an EU audit regulation compliant audit tender for the role of external auditor, as soon as practicable.
‘The board intends to consult with shareholders over coming weeks on the timing of that audit tender process and the resulting appointment of a new auditor. In the meantime, Deloitte will conclude the closing out and signing off process of the group's subsidiary company accounts for the year ended 31 December 2017.’
In February SIG announced it had identified a historical overstatement of profit relating to the year ended 31 December 2016 and prior years and relating to the half year ended 30 June 2017.
The company said the discovery resulted from a forensic review of its core insulation and interiors business in the UK, conducted by Deloitte and KPMG, following a whistleblowing allegation concerning potential accounting irregularities.
The forensic review found that of a number of balances in relation to rebates and other potential recoveries from suppliers were overstated at 31 December 2016, in some cases intentionally. This resulted in an overstatement of profit for the year ended 31 December 2016 of some £3.7m, with up to a further £400,000 overstatement of profit relating to years before 2016.
The review also identified an overstatement of balances at 30 June 2017 relating to recoverable balances brought forward from 2016 and some additional receivables accrued in the first half of 2017. This resulted in up to a further £2.5m overstatement of profit for the half year ended 30 June 2017.
At the time, SIG said it was working with Deloitte to ensure the correct accounting treatment, and said it had identified a number of immediate actions including some specific additional controls around rebates and other supplier recoverables.
Having previously acted as auditor to parts of the group since 2003, Deloitte won the tender for the entire group audit in 2005. The firm was paid £1.6m in audit fees last year according to the 2017 annual report.
Deloitte said it was ‘disappointed’ by the outcome of the vote and confirmed that it had been removed as auditor.
Report by Pat Sweet