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Frances Ball 12 Sep 2019 02:56pm

Sports Direct without auditor as crisis deepens

CEO Mike Ashley has been re-elected to the board of his company, Sports Direct, but conceded that dissenting shareholders “had a point” in their concerns over the beleaguered company

Sports Direct, the high street sports retailer, has been beset by crises in the last year that have damaged the company’s financial reputation.

A resolution to reappoint Grant Thornton as auditor had to be withdrawn at yesterday’s AGM, after the firm quit its post after 11 years.

Ashley was reappointed as director, but 9% of his shareholders voted against the motion, prompting him to concede that recent events meant they “had a point”.

Richard Bottomley, Sports Direct’s senior independent director and chair of the audit board committee, is reportedly trying to persuade the Big Four firms to reconsider taking up the company’s audit.

According to Sports Direct’s July annual results – published late – the Big Four firms all declined to take up an audit contract with the retailer.

Deloitte already carries out tax and advisory work for the company, while EY cited a conflict of interest over its role as administrator to House of Fraser, which Ashley owns.

PwC told Sports Direct that it did not want to be considered. KPMG, Ashley said, told the retailer that “an existing portfolio of clients” meant it could not take on the work.

He is continuing his quest for a Big Four audit because, he explained, his group had “grown exponentially in size, geography, and complexity” in recent years. Ashley argues that a smaller firm could not cope with the scale of the Sports Direct portfolio.

A spokesperson for the Business, Energy and Industrial Strategy department (BEIS) confirmed that the secretary of state – currently Andrea Leadsom – has the power to appoint an auditor to a public company if that company fails to appoint one at its AGM.

This would be used only in “exceptional circumstances, and when all other efforts to appoint an auditor have been exhausted.”

Directors would need to complete a public tender process, which in Sports Direct’s case has not yet concluded. Shareholders need to be presented with a choice of at least two auditors.

If the business secretary is needed to intervene, she must be notified within a week.

The accounting crisis at Goals Soccer Centres, in which Ashley has a 19% stake, is one in a string of recent issues at Sports Direct.

Nonetheless, in the last 15 months Ashley has bought House of Fraser, Sofa.com, Jack Wills, Game Digital, and Evans Cycles. He has also recently placed a bid for Links of London.

Sports Direct shares have fallen nearly 30% in the last year.

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