The former auditors of Mike Ashley’s high street empire are in advanced talks about a multimillion-pound fine that would bring an end to a probe into its accounts that has lasted for over five years.
Sky News has learnt that the Financial Reporting Council (FRC), the audit regulator, is preparing to hit Grant Thornton with a fine of about £2m for failing to disclose the relationship between Sports Direct International – now Frasers Group – and a company controlled by Mr Ashley’s brother.
City sources said an announcement about a settlement was expected within weeks, although it remained subject to final negotiations.
It is the latest financial headache to befall Grant Thornton, the sixth-largest of Britain’s accountancy firms.
In the last eight months, it has been forced to pay penalties totalling more than £3.5m for failings in its work on Patisserie Holdings, owner of the café chain Patisserie Valerie, and the outsourcing giant Interserve.
While a £2m fine for Grant Thornton is small in the context of some of the penalties levied by the FRC against Big Four auditors in recent years, it is sizeable in the context of the firm’s size, with annual revenues roughly one-seventh of PricewaterhouseCoopers in the UK.
The FRC opened its investigation into Sports Direct in November 2016, citing “the preparation, approval and audit of the financial statements of Sports Direct International plc for the 52-week period ended 24 April 2016”.
It added “these decisions [to launch an inquiry] follow reports of an arrangement between Sports Direct and Barlin Delivery Limited which was not disclosed as a related party in the company’s financial statements”.
Barlin Delivery was paid by Sports Direct to make international deliveries to the chain’s customers, and was owned by John Ashley, brother of the billionaire tycoon.
That relationship was not, however, disclosed in the company’s accounts.
Earlier this month, Frasers Group issued a statement to the London Stock Exchange in relation to the FRC’s ongoing investigation, referring to “recent press reports with regards to the historic Grant Thornton audits of ‘Sports Direct’ by the Financial Reporting Council”.
“Frasers Group confirms that at no time has it been part of this investigation and has only been contacted as a witness during this investigation of the aforementioned audits.
“There has never been any suggestion of wrongdoing by Frasers Group during this investigation,” the company said.
The “press reports” flagged in its statement were understood to have been two newspaper articles covering Grant Thornton’s financial results in which the Sports Direct probe was only briefly mentioned.
Mr Ashley is said to have been antagonised by the watchdog’s probe, bringing legal action during its five-and-a-half year timeframe to prevent the disclosure of confidential materials to the FRC.
The former Newcastle United FC owner has had a deeply uneasy relationship with the public markets since floating Sports Direct 15 years ago, although persistent rumours that he would seek to take it private have never materialised.
Mr Ashley remains Frasers’ controlling shareholder, having snapped up high street chains such as Game Digital, Jack Wills and, most recently, Studio Retail Group.
On Friday, the tycoon’s company warned that its full-year results announcement would be delayed – for the third time in four years – following the acquisition of Studio Retail.
“Frasers Group has been informed that, due to the timing of the acquisition and resource constraints within the audit industry as a whole, the SRL aspect of the Frasers Group audit cannot be completed within the originally anticipated time frame,” it said.
However, its said it was maintaining prior guidance for adjusted pre-tax profit of £300m-£350m for the year ending 24 April 2022.
Frasers, Grant Thornton and the FRC all declined to comment.