The Financial Conduct Authority has approached WH Smith to collect details about an accounting error that wiped nearly £600 million from the retailer’s market value. The inquiry, still at a preliminary stage, seeks to determine whether the company breached market disclosure rules for listed businesses.
How it came to light
WH Smith uncovered the accounting issue at its North American subsidiary while preparing year-end results. The misstatement, linked to supplier rebate and promotional income being recorded too early, led to a sharp downward forecast of the company’s profits. An independent review by Deloitte later found profits at the division to have been inflated by up to £50 million.
The wider compliance landscape
WH Smith’s suspected breach of FCA rules is headline news, which is understandable given the company’s high profile. However, it would be wrong to conclude either that such breaches are rare or that there is no mechanism to detect similar transgressions. In fact, accountancy practices of all sizes, such as chippendaleandclark.com/accountants-near-me/bath/, a firm of accountants Bath, frequently conduct independent assurance checks to identify compliance issues, including potential breaches of FCA disclosure rules.
Consequences
After the findings in the WH Smith case were published in November, chief executive Carl Cowling resigned, and UK chief executive Andrew Harrison took over on an interim basis. The company’s full-year profits are now expected to fall by more than half, to between £100 million and £110 million.
WH Smith, which recently sold its high street arm to focus on travel locations, says its priority is to implement Deloitte’s recommendations and restore investor confidence.