The UK accounting watchdog is investigating audits carried out by PwC and KPMG of Eddie Stobart, the UK logistics and haulage company that came close to collapse last year. Shares in Eddie Stobart, known for its fleet of green and red lorries, were suspended last August after the group discovered that its 2018 profits had been overstated by £2m and it said it would delay publishing its 2019 interim results. Its chief executive Alex Laffey also resigned that month.
The errors in its accounts were identified following a review by chief financial officer, Anoop Kang, who joined the company in April 2019 and resigned last month. The Financial Reporting Council said on Tuesday that it was looking into the audited accounts completed by PwC for the 2018 financial year and the audit carried out by KPMG for the 2017 financial year. PwC was appointed by Eddie Stobart in 2018 after KPMG resigned, citing a breakdown in its relationship with management caused by difficulties in obtaining evidence during the audit of the 2017 accounts. PwC signed off the full-year 2018 accounts but then appeared to run into issues.
It was accused last summer by a shareholder in the company of “dithering” over the long-delayed 2019 interim results. Eddie Stobart was rescued by private equity group Dbay in December, which bailed out the group with a loan of £55m in return for a 51 per cent stake in a subsidiary that runs the company’s haulage business. The deal brought to end months of uncertainty about the fate of the 50-year-old trucking group but loaded it with more costly debt. In February, the interim results revealed a string 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.
People briefed on Eddie Stobart’s operations said the business had faltered because of an attempt to grow too rapidly, which had been financed by an increasing number of property deals. These meant that, by 2018, income from property fees accounted for more than half of the company’s total earnings. The review by Mr Kang led to a significant write-down in earnings for the past two years “relating to the lease accounting involving four legacy sites”. 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.”
Sourced from FT.com