Laura Ashley auditor fined over 'serious' breaches
UHY Hacker Young, the auditor of Laura Ashley, has received a "severe reprimand" and fine over its auditing of the retailer before it fell into administration.
The Financial Reporting Council (FRC) has imposed sanctions against UHY and its audit engagement partner, Martin Jones, in relation to the statutory audits of the financial statements of Laura Ashley Holdings for the financial years ending 30 June 2018 and 30 June 2019.
Both UHY and Jones have admitted serious breaches of relevant requirements, including determination of audit materiality in 2018, going concern assessment and revenue.
UHY and Jones received a reduced fine of £217,500 and £32,625 respectively, due to their admission and early disposal. The former also agreed to not carry out any new audits of public companies until at least May 2024 following the decision by the FRC.
The FRC noted both Laura Ashley and the Executive Counsel did not suggest that the administration of the retailer was caused by the breaches.
Jamie Symington, Deputy Executive Counsel at the FRC, said in a statement: "The breaches in this case were serious and spanned two audit years affecting multiple areas of the audits, some which were fundamental to the proper conduct of audit,”
“These included the Auditors’ failure to adequately challenge or investigate management’s use of the going concern assumption – i.e. that the company would remain in business for the foreseeable future – despite this being identified as a significant risk for the FY2018 Audit due to the state of the retail sector.
“UHY further failed to respond appropriately to criticism of their work by the FRC’s Audit Quality Review team, leading to a repeat in the FY2019 Audit of certain breaches which occurred in the FY2018 Audit.”
UHY Hacker Young said in a statement: “We recognise that the audits relating to Laura Ashley Holdings PLC (LAH) for the financial years 2018 and 2019 fell below the high standards that we, as a firm, set for ourselves.
“However, as confirmed by the FRC’s findings, the insolvent administration of LAH was not caused by the issues identified by the regulator but was attributed by LAH’s administrator to the impact of the Covid-19 pandemic on the Group’s business.”
“We are confident that the numerous and wide-ranging improvements we have put in place following this review have significantly raised the quality of the audits that we undertake and have addressed the issues identified by the FRC.
“We have also informed the FRC of our voluntary decision to refrain from conducting new statutory audits of Public Interest Entities (as defined under current legislation), for at least two years. Our decision not to take on new audit work of such companies does not impact our very active and successful AIM and other listed markets audit practice.”
In March 2020, Laura Ashley filed for administration due to the onset of the pandemic. The company signed a deal with Next in October 2020 to relaunch its homewares across its 500 stores.