Grant Thornton is severing ties with Sports Direct (SPD.L) after more than a decade as the company’s auditors.
Sports Direct told investors on Wednesday that Grant Thornton gave notice yesterday that it will not be seeking reappointment as the company’s auditors.
The move causes a significant headache for Sports Direct, which admitted to “barriers” to working with major auditors in its latest set of accounts.
Sports Direct has asked the UK government to clarify how it might act if it becomes the first major UK-listed business to fail to appoint an auditor, according to reports in the Financial Times.
Grant Thornton, which has audited Sports Direct since 2007, will continue working with the company until 11 September, the day of Sports Direct’s annual general meeting.
Sports Direct shares fell 4% in early trade.
Grant Thornton’s resignation comes after several delays to the publication of Sports Direct’s results in July, a highly unusual move that stunned many analysts and investors.
When the results were eventually released they showed a significant tax bill to Belgian authorities. Sports Direct’s share price tumbled after the retailer was found to owe £624m to tax authorities in Belgium.
The auditing industry has faced heavy criticism in recent years after a series of corporate scandals that auditors failed to flag ahead of time, such as the collapse of BHS, Patisserie Valerie, and Carillion.
Grant Thornton has faced individual criticism. It was put under special measures by the UK audit regulator after a review found it was the worst performer of 11 firms assessed. Just 50% of its audits were judged good enough and 26% needed “significant improvement.”
Grant Thornton was also the auditor for Patisserie Valerie, the bakery chain that collapsed into administration at the start of the year after discovering large-scale accounting fraud.
The Financial Times recently reported that the UK’s largest audit firms are looking to release clients perceived as risky or less profitable in the wake of the increased scrutiny.
Sports Direct said Grant Thornton had decided not to re-tender “following a review of its client portfolio.”
Grant Thornton’s resignation causes problems for Sports Direct, which has already admitted to problems with ‘big four’ auditors — KPMG, PwC, EY, and Deloitte.
“Our early discussions with the ‘big four’ have thrown up some barriers,” Sports Direct said in its most recent annual results. It cited potential conflict of interest, inability to tender due to other contracts, and a “reluctance” at PwC due to Sports Direct’s ownership structure.
The accounting watchdog, the Financial Reporting Council, is in conversations with Sports Direct about its current predicament, according to the Press Association.
Auditors are tasked with checking company accounts to make sure that investors are being given a true and accurate picture of businesses.
The UK market is dominated by PwC, EY, Deloitte, and KPMG, which audited 97% of FTSE 350 companies and 99% of FTSE 100 companies between them in 2016-17. BDO and Grant Thornton handle most major business outside the big four.