The UK Financial Reporting Council (FRC) is considering starting a formal investigation into PwC’s audit work for WHSmith’s accounting errors, the Financial Times reported.
The move comes after the disclosure of several years of misstatements in the retailer’s operations in the US.
WHSmith, which has relied on PwC as its auditor since 2015, said that Deloitte’s independent review found revenues had been overstated across multiple 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 on whether to proceed with a formal inquiry into PwC’s audits has not yet been made.
In recent years, PwC’s audit activities have come under review in connection with Wyelands Bank and London Capital & Finance, as well as Tesco prior to its accounting misstatements.
Both the FRC and PwC declined to provide statements, reported Financial Times.
PwC approved WHSmith’s financial statements during the three years in which profits were later found to be overstated due to early recognition of supplier income from its US unit.
Following disclosure, WHSmith’s market value decreased by almost £600m.
The company’s group chief executive Carl Cowling stepped down after Deloitte submitted its findings.
According to WHSmith, Deloitte’s review concluded that “a backdrop of a target-driven performance culture” in North America and “a limited level of group oversight of the finance processes” contributed to the issue.
Deloitte reported no similar concerns in other parts of WHSmith’s business, which operates around 1,300 outlets globally at train stations, airports and hospitals.
The errors related to how supplier payments for promotions were recorded, instead of spreading recognition over time as goods sold. Deloitte found that income was logged when agreements were made.
This approach resulted in higher reported profits and enabled senior staff to earn performance-related bonuses, according to people with knowledge of internal matters.
Deloitte determined that these issues would have a greater impact on reported profits than previously expected, prompting the company to restate full-year 2023 and 2024 earnings and revise its trading profit forecast for its US business downwards to £5m–£15m for 2025, compared with £25m announced in August.
“FRC weighs investigation into PwC audit of WHSmith – report ” was originally created and published by International Accounting Bulletin, a GlobalData owned brand.