The financial reporting watchdog will investigate the accountancy firm Grant Thornton for signing off on an arrangement between Sports Direct, majority-owned by Mike Ashley, and a delivery company owned by his brother.
The Financial Reporting Council said it was looking into the auditor over its failure to report a deal that Sports Direct struck with Barlin Delivery, owned by John Ashley.
The announcement comes in a week where corporate governance will be high on the news agenda, with the prime minister expected to publish a green paper on the topic, possibly on Tuesday.
According to Sports Direct’s website, some of its international delivery to online purchasers was handled by Barlin, which said earlier this year that it made about £300,000 in annual profit thanks to the arrangement.
Britain’s biggest sportswear chain did not disclose the relationship with Barlin, whose registered address is a detached house in a cul-de-sac in the Lincolnshire seaside town of Cleethorpes.
Listed companies are supposed to report any business arrangement with a “related party” business to promote high standards of corporate governance.
Sports Direct said earlier this year that Grant Thornton had decided the company did not need to disclose its arrangement with Barlin despite the business being owned by the brother of its founder and executive deputy chairman.
John Ashley, a computer science graduate, built Sports Direct’s IT systems from scratch after joining his brother’s business in 1989.
Mike Ashley also attracted criticism for putting his daughter’s boyfriend in charge of the company’s property team despite his lack of experience in commercial property.
A small FRC team of two or three investigators will look into Grant Thornton’s role in failing to report the nature of the company’s relationship with Barlin.
If investigators determine that Grant Thornton did not do its job properly, it could face a public reprimand or a sizeable fine.
The FRC can open an investigation after a case is referred by a third party, but in this case the accounting watchdog is understood to have acted of its own accord.
“The Financial Reporting Council has commenced investigations under the accountancy scheme and the Audit Enforcement Procedure in relation to the preparation, approval and audit of the financial statements of Sports Direct International plc [“Sports Direct”] for the 52-week period ended 24 April 2016,” the FRC said in a statement.
“These decisions follow reports of an arrangement between Sports Direct and Barlin Delivery Ltd which was not disclosed as a related party in the company’s financial statements.”
Sarah Wilson, the chief executive of the corporate governance research firm Manifest, said: “Shareholders have been concerned for some time about the interlinkages between Mike Ashley’s personal financial arrangements and those of Sports Direct Plc. It is disappointing that Grant Thornton did not make the disclosures at the time as Grant Thornton also audits Mike Ashley’s personal investment holding firms, Mash Beta and Mash Alpha. This calls into question Grant Thornton’s ability to provide independent and objective advice.”
Sue Almond, the head of assurance for Grant Thornton UK, said: “Grant Thornton is committed to delivering the best possible assurance services to clients and continually enhancing the quality of our audits. The FRC and Grant Thornton have a common interest in promoting good corporate governance and reporting standards. We shall of course be cooperating fully with their investigation.”
Sports Direct did not comment.
The FRC’s inquiry will intensify the scrutiny on Sports Direct, which has already been investigated by MPs after the Guardian revealed some staff at its Shirebrook warehouse were being paid less than minimum wage.
Tension between the company and politicians escalated earlier this month after Sports Direct was accused of planting a hidden camera to record MPs’ conversations during an official visit to Shirebrook.
