WH Smith has come under scrutiny from the UK’s financial watchdog, as it seeks to understand whether the publicly-traded retailer may have broken financial disclosure rules.
The Financial Conduct Authority (FCA) said it was “engaging with the firm” after a Deloitte review into an accounting black hole revealed the company had overstated revenues and profits for the past three years.
WH Smith CEO Carl Cowling resigned upon the revelation. The report detailed a blow to earnings of £40m-£50m, up from the £30m initially estimated when the retailer confessed its error in August.
While the FCA is yet to decide on any formal investigation, it frequently engages with listed companies on an informal basis to keep them in line without resorting to fines or criminal litigation.
London-listed companies must comply with the FCA’s rules for listing on the stock exchange, including requirements for disclosing financial information and prospectuses for bonds and stocks.
WH Smith’s error came about because its North American accounting treatment was “not consistent” with group policy, and supplier income had been recorded too early. After WH Smith revealed its error in August, the retailer’s share price plunged by 42%, remaining roughly flat since.
WH Smith will replace its entire US finance team, according to Financial Times reports.
The retailer’s error bears similarities to Tesco’s 2014 accounting scandal, when it admitted overstating profits by up to £250m – a total later revealed to be even worse at £326m. Tesco was eventually fined £129m in 2017 by the Serious Fraud Office.
In both cases, Deloitte was asked to investigate the error. In both, the company investigated had been audited by PwC.
The Financial Times reported last week that PwC is facing its own enquiries from the Financial Reporting Council, after notifying the accounting watchdog of potential errors in August in line with its internal procedures. PwC declined to comment on the matter.
The Grocer has contacted WH Smith and Deloitte for comment.
No comments yet