The UK Financial Reporting Council (FRC) is considering launching a formal investigation into PwC’s audit work over accounting errors at WHSmith, the Financial times reported.
The move comes after the revelation of several years of errors in the retailer’s operations in the United States.
WHSmith, which has relied on PwC as its auditor since 2015, said Deloitte’s independent review found that revenues had been overstated over several years in its US business.
The errors were identified when a member of the finance team raised concerns in August.
Sources said that as per standard procedure, PwC referred WHSmith’s public announcement to the FRC.
A final decision has not yet been made on whether to proceed with a formal investigation into the PwC audits.
In recent years, PwC’s audit activities have come under review in relation to Wyelands Bank and London Capital & Finance, as well as Tesco prior to its accounting errors.
Both the FRC and PwC declined to provide statements, the Financial Times reported.
PwC approved WHSmith’s financial statements for the three years in which profits were later found to be overstated due to its US unit’s early recognition of supplier revenue.
Following the disclosure, WHSmith’s market value fell by almost £600m.
The group’s chief executive, Carl Cowling, resigned after Deloitte presented its findings.
According to WHSmith, Deloitte’s review concluded that “a backdrop of a goal-driven performance culture” in North America and “a limited level of group oversight of financial processes” contributed to the problem.
Deloitte reported no similar concerns elsewhere in WHSmith’s business, which operates around 1,300 outlets worldwide in train stations, airports and hospitals.
The errors were related to the way payments to suppliers for promotions were recorded, rather than extending recognition over time as goods sold. Deloitte discovered that revenue was recorded when settlements were reached.
This approach resulted in higher reported profits and allowed senior staff to earn performance-related bonuses, according to people with knowledge of internal affairs.
Deloitte determined that these issues would have a greater impact on reported earnings than previously expected, prompting the company to restate full-year 2023 and 2024 earnings and revise its trading earnings forecast for its US business downward to £5m – £15m for 2025, down from £25m announced in August.
“FRC assesses investigation into PwC audit of WHSmith: report” was created and originally published by International Accounting Bulletin, a brand owned by GlobalData.