KPMG and PwC face investigation over Eddie Stobart audits
The accounting watchdog announced on Tuesday a review into KPMG’s audits of Eddie Stobart Logistics plc from 30 November 2017 and PwC’s subsequent audit on 30 November 2018.
FRC confirmed that the investigations will be conducted by its Enforcement Division under the Audit Enforcement Procedure.
Bumpy road for Eddie Stobart
The iconic brand averted permanently putting on its brakes last August when shares were suspended after PwC and then CFO Anoop King unearthed a £2m error in its 2018 accounts. The accounting errors and in-fighting scuffles also led to the CEO Alex Laffey stepping down.
Problems further accelerated when the haulier’s value fell to less than £270m.
PwC took on audits in 2018 after the company’s previous accountants KPMG resigned due to “difficulties in obtaining sufficient appropriate audit evidence”.
However, the issues that emerged in the PwC audit were not in the 2017 audit report, and KPMG signed off the paperwork saying that Eddie Stobart was in excellent health.
PwC’s tenure, though, also had problems when it was accused of “dithering” by a shareholder over the delayed 2019 interim results, according to the FT (behind a paywall).
The haulage company was saved from administration in December by private equity company Douglas Bay Capital, but it ended up being the end of the road for chief executive Alex Laffey, who resigned on the postponement of the interim accounts.
The rescue deal may have saved the trucking company, but further gloom struck in February this year when interim results divulged a number of writedowns, a restatement of revenues and profits and an asset reduction of £169m.
When Ian Smith, the finance director of accounts payable software Invu, spoke to AccountingWEB last year, pinpointed the company’s issues coming from its attempt to rapidly expand.
“The business has expanded rapidly in recent years taking on debt to part-fund acquisitions,” said Smith. “The year-end November 2018 accounts show net debt increasing by £50m to £160m while shareholders’ funds in the parent company increased by £5m. At the same time, intangible assets and goodwill increased by £40m.”
Big Four audits back in the headlines
The investigation of PwC and KPMG over the Eddie Stobart audits puts the Big Four in the spotlight again and adds to an already long list of accounting scandals such as Sports Direct, Carillion and Ted Baker to name a few.
KPMG has already been on the receiving end of a £700,000 fine and a reprimand from the FRC this year. Back in April, the accounting watchdog scrutinised the Big Four firm for lacking professional scepticism in the audit of an unnamed company.
UK’s auditing regulator, the Financial Reporting Council, investigates 2017 & 2018 audits of Eddie Stobart Logistics delivered by KPMG and PwC.
Auditing is one of the biggest frauds. Firms deliver dud audits, charge mega bucks, no public accountability.https://t.co/ld1UH5C9Zw
— Prem Sikka (@premnsikka) May 26, 2020
Naturally, the latest investigation from the FRC adds further ire to Big Four critics. “Auditing is one of the biggest frauds,” tweeted Prem Sikka, and emeritus professor of accounting at the University of Essex. “Firms deliver dud audits, charge megabucks, no public accountability.”
The two Big Four firms both responded to the investigation by committing to co-operate.
PwC said: “We will co-operate fully with the FRC in this investigation. We are committed to delivering consistently high-quality audits and in June 2019 we introduced a major ongoing programme to enhance audit quality across the firm.”
KPMG echoed this comment: “We will co-operate fully with the FRC to conclude this matter as quickly as possible.”