Laura Ashley auditors sanctioned

The home furnishings and clothing business fell into administration at the start of the Covid-19 pandemic in March 2020 - with PwC brought in to oversee the administration process. 

A month later, the firm was purchased by restructuring and investment firm Gordon Brothers. In October 2020 it was announced that the business would partner with fashion retailer Next, resulting in it returning to the UK high street from Spring 2021. 

The focus of the FRC’s investigations has been on the audit of Laura Ashley’s finances for the 2017/18 and 2018/19 financial years. As part of the sanctions, UHY Hacker Young has been fined £217,500 and banned from acting as a statutory audit until 11 May 2024. 

The FRC has also sanctioned the audit engagement partner involved at Laura Ashley, Martin Jones, who received a £32,625 fine and a two-year ban from signing a statutory audit report from 11 May 2022. 

Laura Ashley’s shares were listed on the main market of the London Stock Exchange and, as of 30 June 2019, the group had 155 UK stores employing more than 2,700 people. 

However, the group’s revenue, operating profit, profit before tax and profit after tax consistently declined between the 2015/16 and 2018/19 financial years - with the group’s loss after tax increasing tenfold from £1.4m in 2017/18 to £14m in 2018/19. 

Despite this, the audit reports from UHY Hacker Young for the 2017/18 and 2018/19 financial years were unmodified and noted no material uncertainty related to the use of the going concern assumption. 

Both UHY Hacker Young and Jones admitted serious breaches of relevant requirements, which affected nine areas of the 2017/18 audit, which were repeated in six of the same areas in the 2018/19 audit. These areas included a determination of audit material, a going concern assessment, and revenue. 

As a result of the breaches, these audits failed in their principal objective - namely to obtain reasonable assurance about whether the financial statements as a whole were free from material misstatement.   

During the investigation, UHY Hacker Young and Jones voluntarily decided to withdraw temporarily from undertaking new statutory audits of public interest entities and offered an undertaking to that effect. 

Their agreement with the FRC not to conduct such statutory audits for a period of at least two years is reflected in the non-financial sanctions imposed by way of the decision notice. UHY Hacker Young has also been required to pay the executive counsel’s cost of the investigation. 

Commenting on the news, the FRC”s deputy executive counsel Jamie Symington said: “The breaches in this case were serious and spanned two audit years affecting multiple areas of the audits, some of which were fundamental to the proper conduct of an 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.”