News July 2022 Sanctions against UHY Hacker Young LLP and Martin Jones in relation to Laura Ashley Holdings plc

Sanctions against UHY Hacker Young LLP and Martin Jones in relation to Laura Ashley Holdings plc

13 July 2022
The Financial Reporting Council (FRC) has issued a Final Settlement Decision Notice under the Audit Enforcement Procedure and imposed sanctions against UHY Hacker Young LLP (UHY) and Martin Jones, Audit Engagement Partner, in relation to the statutory audits of the financial statements of Laura Ashley Holdings plc (“LAH” or “the Group”) for the financial years ended 30 June 2018 and 30 June 2019.
 
LAH’s shares were listed on the main market of the London Stock Exchange. As at 30 June 2019, the Group had 155 UK stores, employing over 2,700 people. The Group’s revenue, operating profit, profit before tax and profit after tax consistently declined between FY2016 and FY2019, and the Group’s loss after tax increased ten-fold from £1.4m in FY2018 to £14m in FY2019. Against this backdrop, the audit reports for FY2018 and FY2019 were unmodified and noted no material uncertainty related to the use of the going concern assumption.
 
On 23 March 2020 administrators were appointed to LAH and various subsidiary companies in the Group. LAH cited the impact of the COVID-19 pandemic on its business as the reason for the administration. LAH did not suggest, and Executive Counsel does not now suggest, that the administration of LAH was caused by the breaches of Relevant Requirements by UHY in its execution of the relevant audits.
 
UHY and Mr Jones have admitted serious breaches of Relevant Requirements, which affected nine areas of the FY2018 Audit and were repeated in six of the same areas in the FY2019 Audit. The audit areas included: determination of audit materiality (FY2018 only); going concern assessment; and revenue. As a result of the breaches, the FY2018 and FY2019 Audits each failed in their principal objective, namely to obtain reasonable assurance about whether the financial statements as a whole were free from material misstatement.
 
During the investigation, UHY and Mr Jones voluntarily decided to withdraw temporarily from undertaking new Statutory Audits of Public Interest Entities (“PIE”) and offered an undertaking to that effect. Their agreement with the FRC not to conduct such Statutory Audits for a period of at least two years is reflected in the non-financial sanctions imposed by way of the Decision Notice.
 
The following sanctions have been imposed:
 
UHY
  • A financial sanction of £300,000 adjusted for aggravating and mitigating factors and discounted for admissions and early disposal by 27.5% so that the financial sanction payable is £217,500.
  • Non-financial sanctions comprising:
  • An Order that UHY shall not accept appointment as Statutory Auditor to any PIE for which it is not currently acting as Statutory Auditor, until the later of: (i) 11 May 2024; and (ii) such time as the prevailing registration body for PIE Statutory Audit registration is satisfied that UHY has the necessary competence to conduct high quality Statutory Audits of PIEs in compliance with Relevant Requirements.
  • A severe reprimand.
  • A declaration that the FY2018 and FY2019 Audit reports signed on behalf of UHY did not satisfy the Relevant Requirements, as set out in the Final Settlement Decision Notice.
 
Mr Jones
  • A financial sanction of £45,000 adjusted for aggravating and mitigating factors and discounted for admissions and early disposal by 27.5% so that the financial sanction payable is £32,625.
  • Non-financial sanctions comprising:
  • An Order that Mr Jones shall not sign any statutory audit report for a PIE for a period of two years from 11 May 2022.
  • A severe reprimand.
  • A declaration that the FY2018 and FY2019 Audit reports signed by Mr Jones did not satisfy the Relevant Requirements, as set out in the Decision Notice.
  • An Order that Mr Jones undertakes training, in a form agreed with the FRC, in relation to the application of ISAs 220, 315 and 570.
 
UHY have also been required to pay Executive Counsel’s costs of the investigation.
 
Jamie Symington, Deputy Executive Counsel, said:
 
“The breaches in this case were serious and spanned two audit years affecting multiple areas of the audits, some which were fundamental to the proper conduct of audit. These included the Auditors’ failure to adequately challenge or investigate management’s use of the going concern assumption - i.e. that the company would remain in business for the foreseeable future - despite this being identified as a significant risk for the FY2018 Audit due to the state of the retail sector. UHY further failed to respond appropriately to criticism of their work by the FRC’s Audit Quality Review team, leading to a repeat in the FY2019 Audit of certain breaches which occurred in the FY2018 Audit.”
 
The Final Decision Notice is available here.