Sports Direct International (SDI) is pleading with the big four accountants to pitch for its audit contract after warning that a smaller firm would be unable to perform the role.
Sky News has learnt that the retail group has in the last fortnight asked the profession’s dominant firms – Deloitte, EY, KPMG and PriceWaterhouseCoopera (PwC) – to hold fresh talks aimed at handing one of them the controversial mandate.
The move, which came ahead of Sports Direct’s annual general meeting (AGM) on Wednesday, underlines the extent to which the company’s founder, Mike Ashley, is determined to restore its financial credibility after a torrid period. )
Richard Bottomley, Sports Direct’s senior independent director and chair of its board audit committee, is leading the effort to persuade the big four auditors to reconsider their decision to snub the role, according to insiders.
If it fails to replace Grant Thornton, which has held the role since 2007, Sports Direct faces having to resort to an untested process that could see Andrea Leadsom, the business secretary, orchestrating the appointment of a new auditor.
In its delayed annual results published in July, Mr Ashley, Sports Direct’s chief executive, outlined the reasons that the largest auditors had refused to tender for the work – a snub) first reported by Sky News a year ago.
Deloitte, he wrote, already conducted tax and advisory work for Sports Direct, eliminating the potential for it to also work as the company’s auditor.
EY, Mr Ashley added, had expressed reservations because of its role as administrator to House of Fraser, creating a possible conflict of interest.
Meanwhile, PwC had told Sports Direct it did not wish to be considered in the wake of a string of fines relating to audit work for companies such as BHS, the department store chain previously owned by Sir Philip Green.
KPMG had informed Sports Direct that it could not take on the work owing to “an existing portfolio of clients”, Mr Ashley wrote.
The tycoon added that because his company had “grown exponentially in size, geography, and complexity over recent years. ..we do not believe a firm outside of the Big Four will potentially be able to cope with such an audit in the future “.
That assertion raises questions about the extent to which Sports Direct is holding genuinely substantive talks with smaller accounting firms such as Mazars and MHA MacIntyre Hudson, both of which have been reported to be in discus sions with the company.
The Financial Reporting Council, the soon-to-be-disbanded accountancy regulator, is understood to be involved in the discussions between Sports Direct and the major auditors. )
The fiasco has raised fresh concerns about the retailer’s governance, even as Mr Ashley continues to pursue takeovers of a string of high street names.
Sky News revealed on Mondaythat Links of London, the struggling jeweler, had become his latest acquisition target.
Sources said that Mr Ashley was interested in acquiring Links as part of his attempt to transform House of Fraser – which he bought out of administration last year – into “the Harrods of the high street”.
Little more than 12 months after the most important takeover of his career, however, that strategy is in crisis after the businessman conceded that the department store chain’s problems “are nothing short of terminal in natu re “.
In its delayed set of annual results, Sports Direct said that with” the gift of hindsight we might have made a different decision in August 2018 “.
In the last 15 months, he has spearheaded takeovers of HoF, Evans Cycles, Game Digital, Sofa.com and, most recently, Jack Wills.
The owner of Newcastle United FC has also had offers turned down for Patisserie Valerie’s parent company, HMV and Debenhams.
Sports Direct is a substantial shareholder in Goals Soccer Centers and is now attempting to buy the chain of listed 5-a-side football venues.
Mr Ashley’s unabated shopping spree is significant in demonstrating his belief in the future of recognisable high street brands.
Even though some of the businesses it has snapped up are relatively small, Sports Direct’s decision to continue acquiring retail brands risks heightening the complexity that a new auditor will be confronted with.
Investo rs have been urged by proxy advisers to oppose Mr Ashley’s re-election as chief executive this week, although his controlling stake means they have no chance of success.
Sports Direct shares have fallen nearly 30% in the last year, leaving the company with a market value of £ 1. 35 bn.
The AGM will be held above Sports Direct’s Flannels store on London’s Oxford Street, which opened last week in an effort to attract higher-spending fashion shoppers.
Neither Sports Direct nor any of the audit firms contacted by Sky News would comment on Tuesday.
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