UK accounting watchdog the Financial Reporting Council (FRC) has opened an investigation into Deloitte audit of Lookers PLC’s financial statements for 2017 and 2018.
Deloitte resigned as the AM100 group’s auditor after last year’s investigation into fraud at the car retailer exposed a £19 million ‘black hole’ resulting from overstated supplier bonuses, fraudulent expenses claims and the inconsistent application of policies, processes and accounting standards.
Grant Thornton begun its investigation into the accounts of one of Lookers’ divisions back in March 2020 but widened its scope to the entire group just over a month later.
News of the scale of Lookers' accounting crisis came on the day of its 2020 AGM as the business set in motion a shake-up of its board members as it embarked on widespread redundancies and dealership closures in a bid to save £50m.
Investigations into Lookers finances also delayed the reporting of its 2019 accounts, triggering a suspension of its ability to trade shares on the London Stock Exchange.
In its statement today (March 12), the FRC said: “The Financial Reporting Council (FRC) has commenced an investigation into the audits by Deloitte LLP (“Deloitte”) of the financial statements of Lookers plc (“Lookers”) for the years ended 31 December 2017 and 2018.
“The decision was made at a meeting of the Conduct Committee on 23 February 2021.
“The investigation will be conducted by the FRC’s Enforcement Division under the Audit Enforcement Procedure.”
A statement issued by Deloitte said it was taking the investigation seriously and was fully cooperating with the FRC.
“Audit quality is our priority and we are committed to maintaining the highest of professional standards,” it said.
Deloitte audited Lookers for 14 years, beginning in December 2006, with BDO taking over the responsibility following its resignation in June last year.
In its resignation letter at the time, Deloitte said that it was resigning its position after measures taken by Lookers to address shortcomings in its financial controls – highlighted in year-end audits in 2017 and 2018 – were found to be “falling short of what was committed, and what we expected”.
Earlier this month AM reported that the Financial Conduct Authority (FCA) had told Lookers that it did not intend to apply any sanction against the car retail group following the decision to close its investigation into the ‘possible mis-selling’ of regulated products.
The AM100’s second-placed car retailer by turnover issued an update via the London Stock Exchange in connection with the investigation by the Financial Conduct Authority’s Enforcement Division.
It said that the investigation into the group's sales processes between the period of January 1, 2016, to June 13, 2019 – originally announced on June 25, 2019 – has now ended.
The move allowed Lookers to release its provision of £10.4 million which was made in relation to any potential liabilities arising from the investigation.