Sports Direct is fighting to prevent the “private” documents it provided to its accountants from being turned over to regulators, in a court case closely watched by the auditing profession.

The retailer, majority owned by billionaire Mike Ashley, argued at a court of appeals hearing on Wednesday that it has a “fundamental right” to keep the private legal documents it gave to Grant Thornton and Deloitte as part of their work for the company. .

He’s trying to overturn a 2018 High Court ruling that ordered him to turn over 40 corporate documents to the Financial Reporting Council, the audit regulator.

The FRC sued Sports Direct for access to documents relating to its investigation into the company’s Grant Thornton audit in 2016.

He is investigating whether Grant Thornton signed a business deal between the retailer and Barlin Delivery, a company owned by Mr Ashley’s older brother John, and why the transaction was not disclosed in the accounts.

The judge sided with the regulator in 2018 and criticized Sports Direct for “obscuring and bordering on obstruction” in refusing to hand over the documents.

However, Sports Direct argued on Wednesday that the documents were covered by legal protection that preserves the confidentiality of certain communications between a client and a lawyer. A lawyer for the company told the court that “professional secrecy is a basic human right” and that the High Court judge “erred” in his order in 2018.

The documents include emails and faxes that Sports Direct exchanged with its lawyers but which were then sent to Grant Thornton, then its auditor, and Deloitte, who was advising the company.

The FRC argued in its response to the appeal that Sports Direct should not be allowed to “hide an unprivileged document by simply disclosing it through a lawyer” and “operate improperly to withhold material. relevant to other parties and to the tribunal ”.

Senior auditors and lawyers have expressed concern over the 2018 court ruling. DAC Beachcroft lawyers said it could have a “chilling effect” on listed companies’ willingness to hand over privileged documents to their own. listeners.

Accountants regularly review legal correspondence during company audits. This correspondence could include advice to the company on a lawsuit or an ongoing merger that could affect its balance sheet.

A business may be reluctant to have these documents forwarded to the FRC due to its information sharing agreements with other regulatory bodies such as the Financial Conduct Authority and the Serious Fraud Office, and the risk that they may be. be published as part of a future application process against the company’s statutory auditor.

BDO, the UK’s fifth largest accounting firm, has written to accounting body ICAEW about the “important public policy issues” of the Sports Direct decision. He said he was concerned the ruling would restrict auditors’ access to privileged advice and prevent them from performing full audits of the company.

BDO board director Gervase MacGregor accused the FRC of “discouraging full access” while simultaneously punishing auditors for failing to obtain sufficient evidence.

The FRC imposed nearly three times as many penalties against UK accountants last year than the year before, dropping from £ 15.5million to £ 43million.


Source link

About The Author

Related Posts