Sports Direct in crunch talks with government as auditor quits

The troubled sporting goods retailer has asked the government for guidance as it stands to become the first major listed business to fail to appoint an auditor, which is in breach of stock market rules, the Financial Times has reported.

Sports Direct said Grant Thornton, which has acted as the retailer’s auditor since its 2007 stock market debut, “intends not to seek reappointment as the company’s auditors” following its annual general meeting on September 11.

The news comes shortly after the retailer published its annual report, which said that it proposed Grant Thornton be reappointed by shareholders at the AGM.

The move by Grant Thornton follows Sports Direct failing to inform its auditors of a €674m (£618m) Belgian tax liability until hours before it was due to sign off its annual accounts.

Grant Thornton’s resignation leaves the retailer in a bind, as it has previously confirmed that big-four auditing firms KPMG, EY and Deloitte have all ruled themselves out due to conflicting clients, while PwC had reservations due to Sports Direct’s ownership structure.

A joint statement from Grant Thornton and the retailer said that Sports Direct “has a longer term aim of looking ot engage a Big Four auditor in the future.”

It added that Grant Thornton resignaton as Sports Direct’s auditor follows a review of by the firm of its “client portfolio for, amongst other reasons, audit profitability.”

If Sports Direct fails to appoint an auditor, business secretary Andrea Leadsom has the power to do so on its behalf.

It was reported last month that Grant Thornton had told the Financial Reporting Council of its plans to resign as Sports Direct’s auditor.

DWF partner Matthew Doughty says: ”We may well see the board, or indeed some of the shareholders, propose an alternative auditor before the AGM (although this will be a tall order in the time available).

”The situation will need to be resolved swiftly; as a PLC listed on the main market, the group needs an auditor in place to be able to satisfy its ongoing obligations under the Listing Rules and to shareholders.

Doughty said that Sports Direct’s situation highlights the wider challenges that all board of public companies face.

”The restrictions on the provision of non-audit services by audit firms to their audit clients, the expectation that auditors be subject to rotation, the dominance of the Big 4 in complex cross-border tax, remuneration, legal and consulting services (creating the potential for multiple technical and commercial conflicts of interest) and the increased regulation and compliance burden on both auditors and their clients, all serve to restrict competition and limit choice for audit committees of large listed companies. ”

”Stakeholders do not seem well served by the status quo – it is little wonder that the potential measures to improve competition in the sector remain hotly contested.”