Another household name has been nobbled by accounting failures as transport company Eddie Stobart becomes the latest British brand engulfed in audit crisis.
Accounting irregularities at Eddie Stobart have triggered the immediate removal of the haulage giant’s chief executive and suspension of trading in its shares, as it faces questions over the obstruction of historic audits.
On Friday, the firm released a statement acknowledging a review by chief financial officer Anoop King, in conjunction with auditors PwC, had uncovered a £2m error in its 2018 results, which were announced last month.
The firm said, “the Board is applying a more prudent approach to revenue recognition, re-assessing the recoverability of certain receivables, as well as considering the appropriateness of certain provisions.”
Dividends and pensions are likely to be hit, as PwC said operating profits had been overstated by 4%.
The company, whose distinctive green and red lorries are a fixture on UK roads, also said half-year profits will likely be “significantly lower” than anticipated.
Share trading has been temporarily suspended while the internal investigation takes place, as the company said it would miss the statutory deadline for publishing half-year results.
City analysts had expected £63m of underlying operating profits for the full year, and the accounting revisions have heaped further pressure on troubled investment manager Neil Woodford, who is the largest shareholder in Eddie Stobart, holding a 22.9% stake.
In June this year, Woodford suspended trading in his largest fund after rising numbers of investors requested their money back.
Previous accountants KPMG resigned last year over a “breakdown” in the relationship between the firms following Eddie Stobart’s 2017 audit, citing “difficulties in obtaining sufficient appropriate audit evidence”.
It said the information was eventually uncovered but refused to stay on and was replaced by PwC.
KPMG billed £42,000 for the audit of Eddie Stobart’s parent company, and £282,000 for audit of subsidiaries. It also earned £834,000 for consultancy services and taxation.
The issues it claimed to have found were not detailed in the accounts or the 2017 audit report, and it said Eddie Stobart was in excellent health when signing off the paperwork.
KPMG declined to offer comment when asked to provide more detail on its fallout with Eddie Stobart or answer why it did not provide further information in its resignation letter on the aforementioned problems.
PwC took the reins in December 2018 and audited for the year to the end of November 2018, presenting no problems and a healthy outlook for the haulage firm.
Days after the paperwork was filed with Companies House, Eddie Stobart went public with its admission of accounting inaccuracies.
The company has declined to make any further comment on KMPG’s decision to quit.
“Another day, another accounting ‘mistake’”, said accounting professor Atul Shah. “How long did the auditors know about this, and how long did they not challenge it before 2019? This means losses for shareholders and pension funds.”
He said the Eddie Stobart issues will further fuel calls for the Big Four to be broken up, as it furnishes more unwanted attention on KPMG and PwC, with their roles in many of the aforementioned debacles still under investigation.
“Is there any big firm capable of a decent audit?” said Prem Sikka, professor of accounting at the University of Sheffield, and emeritus professor of accounting at the University of Essex. “There is a common pattern. Company directors prepare flawed accounts and auditors go along with them, all for a fee,” he said.
Increase executive responsibility for failings
Industry experts said the time has come for the government to increase executive responsibility for failings, as this would give audit more room to do its job properly.
“Audits are not designed for the wholesale fraud that has become pervasive since government held no executives to account for the financial crisis,” said Lydia Ebdon of Approachable Accountants.
It is often easy to blame the big-name auditors, said chartered accountant David Peniket, when the problems often stem from the firm itself.
“We shouldn’t be too quick to blame the auditors for what is mainly management’s responsibility,” Peniket said.