Sports Direct probed by financial regulators

The Financial Reporting Council has queried how the retailer’s auditor, Grant Thornton, valued its stake in Debenhams – the department store chain that was sold in a pre-pack deal to its lenders last month.

The Financial Conduct Authority has voiced separate concerns over Sports Direct’s disclosure of information in relation to its mooted bid for Debenhams prior to the pre-pack sale.

According to The Times, the FCA raised questions with Sports Direct back in September, following its AGM.

Following the meeting, the Mike Ashley-controlled business was forced to make a statement to the stock market clarifying that it did not intend to make a bid for Debenhams.

Sports Direct said at the time that its non-executive director, Simon Bentley, had been misunderstood by journalists. He is alleged to have said that Sports Direct would combine Debenhams with House of Fraser, which it had bought out of administration the previous month.

A spat between Ashley and Debenhams ensued at the start of this year, as Ashley sought to protect Sports Direct’s 29% stake in the embattled department store business.

His shareholding was wiped out last month when Debenhams tumbled into administration, following a string of attempts by Ashley to buy the business and offer it rescue funding.

Sports Direct is also under scrutiny over its most recent financial accounts, which were audited by Grant Thornton.

The FRC is looking at whether Sports Direct’s sizeable stake in Debenhams should have been accounted for as having significant influence over the business.

That could have meant it was worth more than the amount listed in Sports Direct’s accounts.

If the FRC finds any wrongdoing, it could result in a sanction against Grant Thornton, rather than Sports Direct.

The sports and leisure giant is already preparing to tender its audit contract and hopes to secure a new auditor in the summer.