Auditor EY under fire over its green light for Wilko

EY, the auditor of collapsed retail chain Wilko, is facing a backlash for its oversight of the group after signing off its accounts despite the firm having warned that it did not have enough funds to cope with a sharp drop in sales.

It comes as MPs on the Business Committee are set to gather 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 rescued another flagging chain HMV and owns a string of huge companies – has emerged as a frontrunner in the race to save Wilko.

The risk of insolvency appears to have been flagged as long ago as January last year when the firm was putting the finishing touches to its most recent set of annual accounts, for the year to 29 January, 2022.

It reported a loss of £37.6 million and Wilko’s directors warned that there was a ‘material uncertainty’ around the fact that it had not been able to secure additional funding, which ‘cast significant doubt’ over its ability to continue as a going concern.

Backlash: The risk of insolvency appears to have been flagged as long ago as January last year when the firm was putting the finishing touches to its most recent set of annual accounts

However, the bosses added that the firm would have ‘adequate resources’ to continue operating until January 2024 and that financing could be secured before that date. Their forecast turned out to be inaccurate when the group went bust.

Even a £40 million emergency loan earlier this year from Homebase owner Hilco failed to prevent the collapse.

Despite growing doubts about its financial health and mounting losses, Wilko’s auditors EY agreed with the directors’ assessment. One of its senior auditors, Victoria Venning, signed off the accounts.

EY said the directors’ methods were ‘appropriate’ despite acknowledging that a ‘material uncertainty’ existed 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, professor of accounting and finance at City University, said EY’s decision to not qualify its agreement with the assessment of Wilko’s directors was ‘bizarre’.

‘What happened to the professional assessment of the accounts?’ he asked. ‘If auditors are just going to accept the opinion of the directors then what is the point of the audit?’

He added: ‘This was not a good judgement. All the warning signs would have been there. If this is how audits are conducted, how are the public supposed to know what is accurate and what isn’t?’

Prem Sikka, a Labour peer and professor of accounting at the University of Essex, highlighted that EY had failed to explain why it had agreed with the directors of Wilko, saying the auditor ‘absolutely has questions to answer’.

He added: ‘This is not good enough. We don’t even know about the team that performed the audit. ‘This is something the Business Select Committee should be looking at.’

EY could be among several parties facing a potential grilling by MPs on the committee. Wilko’s bosses may also be called in for questioning, The Mail on Sunday understands.

The Wilko issue threatens to become another headache for the accounting giant, which is currently in the grips of an internal crisis.

In April, the firm was forced to abandon plans to separate its audit and consulting businesses amid in-fighting among EY’s top brass over the strategy.

Matters worsened earlier this month when EY announced plans to slash about 150 jobs in its financial services consulting practice in the UK, which employs 2,300 people.

The revelations about Wilko are also likely to raise further questions about the relationship between big companies and their auditors.

EY and other members of the Big Four accountancy firms – Deloitte, KPMG and PwC – have been fined millions of pounds for the audit failings of major firms. The Government is coming under pressure to overhaul audit rules following the scandals. It also attracted criticism from opposition MPs last week following reports it was preparing to drop reform plans from its legislative programme for the coming year.

‘The Government’s failure to bring forward audit reform, and subsequent decision to drop it all together is even more foolish in the context of this worrying news,’ Labour’s shadow business secretary Jonathan Reynolds told The Mail on Sunday.

This post first appeared on Dailymail.co.uk