Auditor EY criticized for its green light for Wilko
- Wilko warned that it did not have sufficient funds to deal with a sharp drop in sales
- The risk of insolvency seems to have been alerted already in January of last year
- “Material uncertainty” due to the fact that Wilko had not obtained additional financing
EY, the auditor of the collapsed retail chain Wilko, faces backlash over its oversight of the group after closing its accounts despite the company having warned it did not have sufficient funds to deal with a sharp drop in sales. .
It comes as MPs from the Business Committee meet on Tuesday to discuss the fate of the retailer, which collapsed into administration last month putting 12,000 jobs at risk.
Doug Putman, the 39-year-old Canadian billionaire businessman who bailed out another HMV chain and owns a number of big companies, has emerged as one of the favorites in the race to save Wilko.
The risk of insolvency appears to have been flagged as early as January last year, when the company was putting the finishing touches on its most recent set of annual accounts, for the year ending January 29, 2022.
Reaction: The risk of insolvency appears to have been flagged as early as January last year, when the company was putting the finishing touches on its most recent set of annual accounts.
It reported a loss of £37.6 million and Wilko directors warned there was “material uncertainty” surrounding the fact that it had been unable to raise additional funding, which “cast significant doubt” on its ability to continue as a company. working.
However, the businessmen added that the company would have “adequate resources” to continue operating until January 2024 and that the financing could be obtained before then. His forecast turned out to be inaccurate when the group went bankrupt.
Even a £40m emergency loan made earlier this year by Homebase owner Hilco failed to prevent collapse.
Despite growing doubts about its financial health and mounting losses, Wilko, EY’s auditors concurred with the directors’ assessment. One of its lead auditors, Victoria Venning, approved the accounts.
EY said the directors’ methods were “appropriate” despite acknowledging that there was “material uncertainty” about its viability as a going concern. EY was paid £269,000 for its services. The auditor declined to comment on the matter.
Atul Shah, a professor of accounting and finance at City University, said EY’s decision not to rate its deal with the Wilko directors’ assessment was “bizarre.”
‘What happened to the professional evaluation of the accounts?’ she asked. ‘If the auditors are simply going to accept the opinion of the directors, what’s the point of auditing?’
He added: “This was not a good trial. All the warning signs would have been there. If this is how audits are done, how is the public supposed to know what is accurate and what is not?”
Prem Sikka, a Labor peer and professor of accounting at the University of Essex, stressed that EY had not explained why it had agreed with Wilko’s directors, saying the auditor “definitely has questions to answer.”
He added: “This is not good enough. We don’t even know about the team that conducted the audit. This is something the Companies Select Committee should consider.”
EY could be among a number of parties facing potential questioning from committee MPs. Wilko bosses could also be called in for questioning, The Mail on Sunday understands.
The Wilko affair threatens to become another headache for the accounting giant, which is currently mired in internal crisis.
In April, the firm was forced to abandon plans to separate its audit and consulting businesses amid infighting among EY top brass over strategy.
Things took a turn for the worse earlier this month when EY announced plans to cut some 150 jobs at its UK financial services consulting practice, which employs 2,300 people.
The Wilko revelations are also likely to raise more questions about the relationship between big business and their auditors.
EY and other members of the big four accounting firms (Deloitte, KPMG and PwC) have been fined millions of pounds for audit failures by major firms. The government is under pressure to review auditing standards following the scandals. It also drew criticism from opposition lawmakers last week after reports it was preparing to scrap plans for reform from its legislative program for next year.
“The government’s failure to come up with an audit reform and the subsequent decision to abandon it altogether is all the more foolish in the context of this worrying news,” the party’s shadow business secretary told The Mail on Sunday. Labour, Jonathan Reynolds.