The UK Financial Reporting Council (FRC) is considering launching a formal investigation into PwC’s audit work for WHSmith’s accounting errors. Financial hours Reported.
The move comes after years of revelations of misrepresentation in the retailer’s operations in the US.
WHSMITH, which has relied on PwC as its auditor since 2015, said an independent review by Deloitte had found that revenues in its US business had been inflated over the years.
The errors were identified after a member of the finance team raised concerns in August.
Sources said that, as per standard procedure, PwC referred WHSmith’s public declaration to the FRC.
A final decision on whether to proceed with a formal inquiry into PwC’s audit is yet to be taken.
In recent years, PwC’s audit activities have examined Wylands Bank and London Capital & Finance, as well as Tesco before its accounting misstatements.
According to the Financial Times, both FRC and PwC declined to provide statements.
PwC approved WHSmith’s financial statements over the three years which subsequently overstated profits due to the recognition of supplier income from its US unit.
Following the disclosure, WHSMITH’s market value fell by around £600 million.
After Deloitte presented its findings, the company’s group chief executive, Carl Colling, stepped down.
According to WH Smith, the Deloitte review concluded that the “background of a target-driven performance culture” in North America and “a limited level of group oversight of finance processes” contributed to the problem.
Deloitte said there were no similar concerns in other parts of WHSMITH’s business, which operates about 1,300 stores globally in train stations, airports and hospitals.
Errors related to recording payments for supplies for promotions, rather than spreading recognition over time as goods are sold. Deloitte found that revenue was logged when the contracts were made.
The approach resulted in higher profits and enabled senior staff to receive performance-related bonuses, according to people with knowledge of the internal affairs.
Deloitte has determined that these issues will have a greater impact on profits than previously expected, prompting the company to restate full-year 2023 and 2024 earnings and revise down its trading profit forecast for its US business to £5m–£15m for 2025, compared with what it announced in August.
The weight of the investigation was originally created and published by the “FRC Audit of PwC Audit of WH Smith – Report”. International Accounting Bulletina Global Data owned brand.