PwC’s decision to put on seven-league boots and quit auditing Boohoo’s accounts after seven years is not grandstanding. It is a rational look at the fees it is earning from the fast-fashion retailer — £225,000 for audit and £389,000 including other services — and the risks of continuing to work with a business under the spotlight.
Lawyer Alison Levitt, commissioned by Boohoo to look at allegations of low pay and poor working conditions in the group’s Leicester supply chain, said the management knew about the failures. The Manchester group’s internal processes were “well below the standard which would be expected of a company of its size and status” and risk management systems “were significantly undeveloped”. Alleged control weaknesses were also the reasons given for Deloitte quitting as auditor of EG, the petrol stations business whose owners have recently agreed to buy grocer Asda.
PwC’s move gives more oxygen to widespread reservations about Boohoo’s culture. The retailer’s shares fell almost 20 per cent on Monday. But PwC’s decision comes from a cold-eyed calculation of what its continued association with Boohoo might cost it, not what it will cost Boohoo’s shareholders or staff.
Auditors are under increasing scrutiny themselves. The Financial Reporting Council suggested in its latest audit quality review in July that too many number checkers were prepared to play patsy. They didn’t challenge enough, or display enough scepticism and were too willing to take the bosses’ maths on trust.
When a big-name auditor quits, it can open the way to a small would-be rival without the resources to triple-check management’s spreadsheet prowess.
Worse, it can leave a void.
Sports Direct — aka Frasers Group — struggled to find a replacement auditor when Grant Thornton resigned after the retailer revealed a probe by the Belgian tax authority. It narrowly avoided having to ask Andrea Leadsom, the then business secretary, to impose her choice on the group.
EY — which is still in the doghouse for its audit of Wirecard, the collapsed German payments processor — quit as auditor of fintech Finablr in May citing corporate governance weaknesses and links to the payments’ group’s stablemate NMC Health. Finablr, which has since missed its accounting deadlines and suspended its shares, has not announced a replacement.
PwC is entitled to cut free from Boohoo. But it is in everyone’s interests to make sure Boohoo appoints a credible successor.
Amigo can’t shake off FCA
Popstrel Taylor Swift knows a thing or two about feuds. When “the haters gonna hate, hate, hate, hate,” you have to “shake it off, shake it off”, she advises. Embattled subprime lender Amigo Loans, which relies on friends and family guarantors backing borrowers, is having trouble shaking off its own adversaries, writes Cat Rutter Pooley.
The lender has a new “asset voluntary requirement” with the Financial Conduct Authority, a supervisory tool the watchdog uses to keep firms in line. It means Amigo can’t pay dividends or dole out discretionary sums to directors without the FCA’s say-so. No big deal, says Amigo. The so-called VReq won’t affect the day-to-day running of the business. And Amigo can still pay down its debts.
But it isn’t Amigo’s first run-in with the FCA. Amigo entered into another VReq in May to deal with a building backlog of complaints from customers. It was required to address grievances within eight weeks. That VReq was meant to last until the end of June. So numerous were the gripes, it had to be extended until the end of this month.
The new restriction shows the FCA isn’t letting up on high-cost lenders. It has consistently tightened regulation since 2014, the year that payday lender Wonga got on its wrong side and was subjected to its own VReq. Non-Standard Finance announced an FCA-induced review into its processes in August. Scrutiny will only intensify as an economic downturn increases the number of potential customers unable to access more conventional sources of credit.
Amigo isn’t necessarily done for. A VReq signalled the beginning of the end for Wonga. But doorstep lender Provident Financial’s Vanquis Bank had one for almost four years. It was lifted in August, and analysts reckon the Provvy is recovering.
Still, the Provvy’s shares are only worth a tenth of what they were little more than three years ago. Amigo may be on a similar path.
It has successfully shaken off unpredictable founder and former major shareholder James Benamor, who spent much of the past year trying to regain control of the company. New management is trying to “restore confidence”. Their efforts may stop Amigo from failing. But with a market cap of £44m, they are unlikely to ever build it back to the £1.3bn business it was at IPO less than two-and-a-half years ago. Unlike Taylor Swift, Amigo isn’t just gonna shake it off.
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