The FRC issued a Final Settlement Decision Notice and imposed sanctions against UHY and Martin Jones, Audit Engagement Partner, in relation to the statutory audits of the financial statements of Laura Ashley Holdings plc (LAH) for the financial years ended 30 June 2018 and 30 June 2019.

LAH’s shares were listed on the main market of the London Stock Exchange. As at 30 June 2019, the group had 155 UK stores, employing over 2,700 people. The group’s revenue, operating profit, profit before tax and profit after tax consistently declined between FY2016 and FY2019, and the group’s loss after tax increased ten-fold from £1.4 million in FY2018 to £14m in FY2019. Against this backdrop, the audit reports for FY2018 and FY2019 were unmodified and noted no material uncertainty related to the use of the going concern assumption.

On 23 March 2020 administrators were appointed to Laura Ashley and various subsidiary companies in the group. LAH cited the impact of the COVID-19 pandemic on its business as the reason for the administration. LAH did not suggest, and Executive Counsel does not now suggest, that the administration of LAH was caused by the breaches of Relevant Requirements by UHY in its execution of the relevant audits.

UHY and Mr Jones have admitted serious breaches of Relevant Requirements, which affected nine areas of the FY2018 audit and were repeated in six of the same areas in the FY2019 audit.

During the investigation, UHY and Mr Jones voluntarily decided to withdraw temporarily from undertaking new statutory audits of Public Interest Entities (“PIE”) and offered an undertaking to that effect. Their agreement with the FRC not to conduct such statutory audits for a period of at least two years is reflected in the non-financial sanctions imposed by way of the Decision Notice.

In the notice the following sanctions have been imposed:

On UHY, the FRC has imposed a financial sanction of £300,000 adjusted and discounted by 27.5% bringing the financial sanction payable to £217,500. Additionally non-financial sanctions have been imposed including an order that UHY shall not accept appointment as statutory auditor to any PIE for which it is not currently acting as statutory auditor, for an agreed period of at least two years, a severe reprimand, and a declaration that the FY2018 and FY2019 audit reports signed on behalf of UHY did not satisfy the Relevant Requirements, as set out in the Final Settlement Decision Notice.

Mr Jones has also been heavily reprimanded, similarly being barred from statutory audit appointments for two years, and has received a financial sanction of £45,000 adjusted and discounted by 27.5% making the financial sanction payable £32,625. Mr Jones is also required to undertake training in relation to the application of ISAs 220, 315 and 570.

UHY have also been required to pay Executive Counsel’s costs of the investigation.

Jamie Symington, deputy executive counsel, said: “The breaches in this case were serious and spanned two audit years affecting multiple areas of the audits, some which were fundamental to the proper conduct of audit.

“These included the Auditors’ failure to adequately challenge or investigate management’s use of the going concern assumption - i.e. that the company would remain in business for the foreseeable future - despite this being identified as a significant risk for the FY2018 Audit due to the state of the retail sector.

“UHY further failed to respond appropriately to criticism of their work by the FRC’s Audit Quality Review team, leading to a repeat in the FY2019 Audit of certain breaches which occurred in the FY2018 Audit.”