An investigation into two audits of the accounts of Eddie Stobart Logistics (ESL) has been launched by the UK’s accounting watchdog.
The Financial Reporting Council (FRC) is investigating KPMG’s audit of ESL’s accounts for the year ended 30 November 2017 and an audit carried out by PWC for the year to 30 November 2018.
The investigations will be conducted by the FRC’s enforcement division under the audit enforcement procedure.
The investigation comes just nine months after ESL shares were suspended after the group discovered that its 2018 profits had been overstated by £2m.
Chief executive Alex Laffey resigned shortly after the revelation.
After coming close to collapse in December last year, shareholders voted to accept a takeover bid by private equity firm DBAY Advisors. The £75m bail-out was backed by William Stobart, fourth child of its founder Eddie Stobart.
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The deal, which saw DBAY take a 51% stake in ESL, gave the company an eleventh-hour reprieve following reports that accountancy firm Deloitte had been lined up to prepare it for insolvency.
PwC was appointed by Eddie Stobart in 2018 following KPMG’s resignation. KPMG’s letter of resignation accused ESL management of making it difficult for KPMG to obtain "sufficient audit evidence" as it tried to compile the company's 2017 accounts.
PwC signed off the full-year 2018 accounts but met criticism from shareholders and unions for the continuing delay in publishing the firm’s 2019 interim results, which, when finally revealed in February, showed a number of writedowns of underperforming contracts and leases, a restatement of revenues and profits going back more than two years, and a reduction in the value of the company’s assets of £169m.
PwC said: “We will co-operate fully with the FRC in this investigation. We are committed to delivering consistently high-quality audits and in June 2019 we introduced a major ongoing programme to enhance audit quality across the firm.”
KPMG said: “We will co-operate fully with the FRC to conclude this matter as quickly as possible.”
