ICSM Business News: Accountants fined in Laura Ashley audit for failing to notice the debt-loaded retailer was on the brink of collapse

By Harry Mottram: It’s a depressing pattern of incompetence amongst auditors who fail to spot when a business is in trouble – or perhaps either through pressure from a client or a willingness to overlook assurances that all is well – that sees an apparently healthy firm collapse soon afterwards. We have seen it all before when auditors gave Carillion a clean bill of health months before it crashed leaving millions of pounds of unpaid suppliers’ invoices, bank loans and contractors left high and dry along with a long list of unfinished buildings. Thomson Holidays and Patisserie Valerie also featured audits that failed to reveal the extent of their situation – and so it is nothing new – just depressing.

Now the accounting watchdog The Financial Reporting Council (FRC) has reprimanded UHY Hacker Young for botched work and banned UHY Hacker Young from auditing public companies and slapped the firm with a £217,500 fine over its work for Laura Ashley. The high street retailer went bust in March 2020 at the beginning of the Covid crisis with losses the year before of £14m with UHY blaming it on the lockdowns. ICSM said that excuse didn’t wash as any accountant worth their salt would have spotted the black hole in their finances.

The failure to identify the massive losses the led to the administrators being called in the 155 stores being closed and 2,700 workers losing their jobs. Plus of course a long list of creditors.

At the time it had 155 stores in the UK and 2,700 staff. Before the collapse its annual losses jumped tenfold from £1.4m to £14m in the year to June 2019. But the annual report did not flag up concerns about its ability to remain in business. In fact, the writing was on the wall some years earlier as the one time star brand of the high street fell from the retail premier division. The Centre for Retail Research said: “The post-2016 deterioration in fashion sales affecting most clothing retailers was certainly a factor, but the failure of the business to match modern consumer requirements meant it was difficult to see the purpose of the company.”

The FRC slammed UHY and Jones for 'serious breaches' of inaccurate auditing fined UHY partner Martin Jones was fined £32,625 as well as giving him the red light for two years for similar work.

Jamie Symington for the FRC said the auditors failed to 'adequately challenge or investigate' Laura Ashley's assertions that it would return to profit as the Covid crisis deepened. Gordon Brothers subsequently bought part of the collapsed fashion brand founded in 1953 by Laura Ashley herself with a high street presence partly in combination with Next.

ICSM had heard concerns by traders long before the collapse with a string of suppliers complaining of late payment – the first sign of a company in trouble. A spokesman for the credit intelligence group said: “No matter how famous a name – never take promises at face value about payment. If a company consistently fails to meet your credit terms they need to be warned and then ditched until they pay on time.”

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For details for the work of the journalist Harry Mottram visit www.harrymottram.co.uk