Ted Baker admits to £58m hole as stock count error doubles
Embattled fashion brand Ted Baker has more than doubled the initial estimates of a stock miscalculation, stating it has overestimated the numbers by at least £58m.
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At 25% difference then the auditors were clearly asleep on the job. This isn't a tweak to a spreadsheet for slow moving stock etc but a massive difference.
Were they even on the job?
It's no wonder Auditors get a bad name.
Probably not! This isn't really even Accountancy is it? It doesn't take an Accountant to look at a pile of stock and then start asking how much can we sell it for? It looks like Stock was missed off the audit this year again lol!
I hold no brief for auditors but one can see that they might not be able to see a stock difference even of such enormous proportions. When such large numbers are being dealt with it is difficult to see quite how they can be audited. I can recall stock audits in my training days and they were largely a bit of a joke. You couldn't physically check many items and often those that could be checked depended upon product knowledge which we often didn't have. So I suppose it all went technical and we know what that means.
Like MTD - HMRC will believe that the stuff they receive will be more accurate because it is 'digital all the way', but in reality the reverse is the case because where people don't understand the systems they take the easiest option which is often wrong and once done who is going to be dredging through the reams of electronic data to find an error they don't know about. GIGO as they used to say but that is all forgotten nowadays. It is easy to see with HMRC who used to have local people who understood accounts and would look at what came in and actually engage their brains. But now, so they say, stuff is analysed by computer and the Computer screams and shouts where something is amiss. Fantastic but untrue - it just doesn't - at least judging by the few numbers of enquiry cases which all now seem to arise from missing bank interest or something similar.
Does the HMRC function as a tax collector? Not very well as they are too busy sorting out the errors their computers make.
So perhaps one is being harsh with auditors, perhaps it is just a job which can no longer be done efficiently and accurately given the size and spread of the organizations involved.
To my simple mind it requires a more continuous involvement by the audit firms in the nuts and bolts of their clients' accounting structures. The existing system just doesn't work and I don't think it can in very large organisations. Mind you, to be fair, I wouldn't touch an audit like that with a 40ft bargepole so perhaps I'm not the one to judge.
To my mind, there are clearly two culprits here, the finance director/senior financial management and the auditors. The finance director for not asking the right questions and not proactively managing the business systems. In my early professional days, I have witnessed many an FD and Financial Controller who failed in this regard being sacked.
The auditors clearly have seriously failed here. It costs nothing to ask a question and probe into the numbers. Again, in my experience as a senior finance manager of a high tech manufacturing company, I was often required to explain inventory systems and the results they produced to our auditors - they asked the right questions. To my mind, it appears this audit has simply been a tick box exercise.
to me when i was articled in 73-78 auditing was all about procedures and there were no computers. this was wrong and has never really gone away. start with the BS at the year end and work backwards first from that date before moving forward. it is alleged that in the case of PV they moved cheques between the companies which inflated the year end balance but these were reduced when the cheques bounced shortly after, very basic, so much for a review of PBSE. Sending out trainees without any experience and charging them out at over £100 is simply racketeering and its about time the pen pushers at the Institutes got to grip with these matters. but then again i have a tendency to go soft
Where ever you see a set of accounts with a large amount of stock/WIP take those figures with a large pinch of salt because experience tells you that is the figure that is "flexed" to make the accounts look like the management wants....
Not a good decade for Ted Baker's auditors. In 2018 the FRC fined them GBP3 million firmwide and GBP80,000 for the engagement partner, due to misconduct in respect of independence issues. And now this...Frankly reviews of slow moving and/or seasonal stocks are all part of Auditing 101. So what went wrong? We don't have all the facts yet, but this really doesn't look too good at first pass. I will be interested to learn more.