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Sports Direct has appointed RSM as its auditor, ending speculation that the government could be forced to intervene to find the UK sportswear retailer a group willing to vet its books.
The appointment of RSM, the seventh largest audit firm in the UK by fee income, follows the resignation of Grant Thornton in August. Grant Thornton had audited the retailer since it floated on London’s main market in 2007 but it quit following concerns over the disclosure of a €674m tax bill.
Its decision to walk away from Sports Direct just three weeks before its annual general meeting meant it became the first major listed business to fail to appoint an auditor in September, piling more scrutiny on to the corporate governance of Mike Ashley’s business.
The group was forced to ask the UK government to clarify how it might act if the retailer did not find a replacement auditor. Under the UK Companies Act, the secretary of state for the department for business, Andrea Leadsom, has the power to appoint an auditor to a quoted company if it cannot appoint one itself. The process has not been tested.
RSM will start immediately, Sports Direct said in a statement on Wednesday.
London Stock Exchange rules require a company to file audited annual accounts or face having their shares suspended or delisted.
Sports Direct, which recorded revenues of £3.7bn last year, will become RSM’s largest and most high-profile audit client. RSM audits 59 companies on London’s junior Aim index but it has no audit clients in the FTSE 350. Its appointment will have to be approved by Sports Direct’s shareholders, although Mr Ashley, the company’s founder and chief executive, controls 60 per cent of the business.
Sports Direct has informed the Financial Reporting Council, the audit watchdog, of its decision, according to a person close to the matter.
The company had struggled to find a replacement auditor as it admitted that it had not previously persuaded rival accounting firms to tender for is audit contract.
Sports Direct said during its annual results in July that all of the Big Four firms — Deloitte, PwC, KPMG and EY — had claimed to be conflicted from auditing it. Deloitte advises the group on tax; EY managed the sale of House of Fraser to Sports Direct; KPMG audits JD Sports, a competitor; and PwC had a “reluctance to engage based on our ownership structure”, according to Sports Direct’s annual report.
It said a firm outside of the Big Four would not be able to “cope” with its audit because of an increase in the company’s size and complexity. However, it reversed that decision following the news that Grant Thornton would resign, approaching a number of mid-tier accounting firms, including BDO, Mazars and MHA MacIntyre Hudson.
Sports Direct is not the first controversial listed company that RSM has taken on. The firm was appointed as auditor to Patisserie Valerie, replacing Grant Thornton, shortly after the café chain revealed an apparent serious fraud, and less than a month before it collapsed.
RSM was called Baker Tilly before it acquired the trading subsidiaries of RSM Tenon in 2013.
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