The financial reporting watchdog will investigate accountancy firm Grant Thornton for signing off on an arrangement between Sports Direct, majority-owned by Mike Ashley, and a delivery firm owned by his brother.
The Financial Reporting Council said it was looking into the auditor over its failure to report a deal that Sports Direct struck with Barlin Delivery, owned by John Ashley.
According to Sports Direct’s website, some of its international delivery to online purchasers was handled by Barlin, which said earlier this year that it made about £300,000 in annual profit thanks to the arrangement.
Britain’s biggest sportswear chain did not disclose the relationship with Barlin, whose registered address is a detached house in a cul-de-sac in the Lincolnshire seaside town of Cleethorpes.
Listed companies are supposed to report any business arrangement with a “related party” business to promote high standards of corporate governance.
Sports Direct said earlier this year that Grant Thornton had decided the company did not need to disclose its arrangement with Barlin despite the business being owned by the brother of its founder and executive deputy chairman.
John Ashley, a computer science graduate, built Sports Direct’s IT systems from scratch after joining his brother’s business in 1989.
Mike Ashley also attracted criticism for putting his daughter’s boyfriend in charge of the firm’s property team despite his lack of experience in commercial property.
A small FRC team of two or three investigators will look into Grant Thornton’s role in failing to report the nature of the firm’s relationship with Barlin.
If investigators determine that Grant Thornton did not do its job properly, it could be hit with anything from a public reprimand to a sizeable fine.
The FRC can open an investigation after a case is referred by a third party, but in this case the accounting watchdog is understood to have acted of its own accord.
“The Financial Reporting Council has commenced investigations under the accountancy scheme and the Audit Enforcement Procedure in relation to the preparation, approval and audit of the financial statements of Sports Direct International plc [“Sports Direct”] for the 52-week period ended 24 April 2016,” the FRC said in a statement.
“These decisions follow reports of an arrangement between Sports Direct and Barlin Delivery Ltd which was not disclosed as a related party in the company’s financial statements.”
The FRC’s inquiry will intensify the scrutiny on Sports Direct, which is already being investigated by MPs after the Guardian revealed some staff at its Shirebrook warehouse were effectively being paid less than minimum wage.
Tension between the firm and politicians escalated earlier this month after Sports Direct was accused of planting a hidden camera to record MPs’ conversations during an official visit to Shirebrook.
