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Mazars faces probe over Studio Retail Group audit

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The accountancy watchdog has launched an investigation into Mazars’ audit of embattled ecommerce retailer, Studio Retail Group.

6th Oct 2022
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Mazars has confirmed that the Financial Reporting Council (FRC) has opened an investigation into the audit of the Studio Retail Group for the period ended 26 March 2021. 

In a statement, the large accountancy firm said it “is cooperating fully with the regulator and, respecting client confidentiality and due process, will provide no further comment during the course of the investigation.”

The period of investigation is a year before Studio Retail Group collapsed into administration in February of this year. The company was then snapped up by retail giant Mike Ashley’s Frasers Group where it now trades. 

Unacceptable audits

Mazars also faces another FRC investigation over its audit of high street clothing brand French Connection. This separate probe relates to the financial year ending 31 January 2020. 

These two investigations come after Mazars was pulled up by the FRC in July for “unacceptable” audits. The accountancy watchdog criticised both Mazars and fellow challenger firm BDO for “growing too fast” and “picking up higher risk audits being dropped by their peers”. 

The FRC said in the annual audit quality report that Mazars didn’t have adequate controls to ensure high-quality audits. The watchdog highlighted growth as being a significant area of concern, especially where the risks were not “properly understood or controlled”. 

Mazars responded to these complaints saying it was addressing the identified issues as part of its “continuous improvement plan”.

The decision to investigate Mazars over the Studio Retail Group audit was made at a meeting of the FRC’s Conduct Committee on 13 September 2022.

Studio Retail Group

Studio Retail Group, a direct mail order company popularly used to buy Christmas gifts, was formerly known as Findel before collapsing into administration and sold to the Frasers Group. 

According to files posted on Companies House by administrators Teneo, the retailer suffered “considerable supply chain disruption” in the second half of 2021 which delayed getting their stock into the UK and, as a result, the company couldn’t meet their customers’ demands during the peak pre-Christmas trading period.  

The company went into 2022 with a “significant funding shortfall” after having an overhang of stock due to late-arriving stock from Asia it couldn’t cancel and a reduction of sales in the latter half of the year. 

The group’s trading statement at the start of 2021 outlined its downgraded earnings expectations of £28m to £30m, falling way short of the £35m to £40m the company had expected in November 2020. News of this gloomy outlook sent the stock falling from 159p on 28 January 2021 to 103p on 31 January 2021. 

The administrators said that the trading underperformance and stock build-up led to a forecast funding requirement of £35m by the start of February. The board attempted to secure a £25m loan to fund the requirement, which could have been reduced by £10m, but this proved unsuccessful.   

The group made the decision to appoint the administrators after it became clear that it didn’t have the funds to pay debts and didn’t have the money to pay wages beyond February. 

According to the adminstrator’s progress report, the total consideration for the transaction was £1, as well as the release of £53.1m of secured liabilities under Studio Retail Group’s credit facility and ancillary facilities. The Frasers Group acquired the business’s secured lenders’ claims for £26.8m. 

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Replies (7)

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By Hugo Fair
06th Oct 2022 19:00

I'm only surprised - in the absence of my suggested feature showcasing the running total of 'audit failures' - that the Sift auto-censoring filter hasn't yet been trained to asterisk every instance of the word 'audit'. :=)

It's clearly offensive to some ... although possibly not as much as the recurrent conclusion that addressing the identified issues via a “continuous improvement plan” is a full solution!

Thanks (2)
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By AndrewV12
07th Oct 2022 09:57

Mazars responded to these complaints saying it was addressing the identified issues as part of its “continuous improvement plan”.

here we go, the old excuses;-
lessons have been learnt,
staff training has been improved
Change in senior management positions
Starting off with a new slate
..........

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By Self-Employed and Happy
07th Oct 2022 10:36

Yet HMRC continue to chase the little guys.......

Time and time again huge firms are allowed to continuously make huge errors and get nothing more than a slap on the wrist and some fines.

Thanks (3)
Replying to Self-Employed and Happy:
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By Paul Crowley
07th Oct 2022 11:48

Not just HMRC
ICAEW loves to give penalties and 'costs' to the little guy
The difference is little guy clients tend to not end up in insolvency, and often are looking just to be a bit spiteful

Thanks (3)
Replying to Self-Employed and Happy:
paddle steamer
By DJKL
07th Oct 2022 17:32

Why would HMRC pursue them, most larger entities subject to audit failure tend to have overstated profits not understated them.

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By paul.benny
07th Oct 2022 12:58

Before we start rushing to declare Mazars guilty and setting up the ducking stool, all we have here is a single sentence from the FRC saying they are investigating Mazars' 2021 audit of Studio Retail.

That's it.

No statement suggesting audit failure. And indeed the facts outlined above suggest the business failure was down to supply chain and trading issues that appear to arise after the audit was completed.

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Replying to paul.benny:
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By Paul Crowley
07th Oct 2022 15:58

The issue is that the regulator has already thrown the poo about by going public.

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