The audit watchdog is mulling an investigation into the accounting scandal at WH Smith that triggered the abrupt departure of the travel retailer’s boss.
Carl Cowling quit last week after an independent review by Deloitte found that WH Smith’s US unit had booked promotional revenues from suppliers early, boosting short-term profit.
It followed a Mail on Sunday analysis of WH Smith’s accounts that showed it was increasingly reliant on such income to hit aggressive sales targets.
The auditor’s review highlighted a ‘target-driven performance culture’ in the US business with limited oversight of its finance procedures from head office in London.
‘Target driven’: The audit watchdog is mulling an investigation into the accounting scandal at WH Smith that triggered the abrupt departure of the travel retailer’s boss
It found that when suppliers agreed to pay WH Smith for their goods to be prominently displayed or discounted to boost sales in its US stores these revenues were booked at the time of the deal, not when the products were sold. This ‘was not consistent’ with its accounting policy, WH Smith said. The chain’s accounts are signed off by PwC, which has audited its books since 2015.
The auditor, Britain’s biggest, gave a clean bill of health to the latest accounts that formed part of Deloitte’s review. The Financial Reporting Council, which oversees how audits are done, is said to be monitoring events at WH Smith.
It has yet to decide whether to launch a formal investigation.
The watchdog has the power to fine audit firms and ban partners who sign off on company accounts from practising.
It is currently looking into 27 mostly audit-related cases. They include the collapses of cake retailer Patisserie Valerie, finance group Greensill Capital and building contractor Carillion.
Shares in WH Smith crashed by 40 per cent when the accounting blunder was unearthed in August.
It was the second-worst one-day drop among large and medium-sized retailers listed on the stock market, broker AJ Bell said.
A WH Smith source said it was too early to say if it would seek to re-appoint PwC as auditors at its annual meeting early next year.
PwC declined to comment.
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