EY, the auditing firm responsible for overseeing collapsed retail chain Wilko, is facing backlash for approving the company’s accounts despite Wilko’s warning of insufficient funds to handle a significant drop in sales. The controversy surrounding EY comes as MPs on the Business Committee prepare to discuss the future of Wilko, which entered administration last month, endangering 12,000 jobs. Doug Putman, a Canadian billionaire businessman known for rescuing HMV and owning various large companies, has emerged as a frontrunner to save Wilko. The possibility of insolvency was raised as early as January last year when Wilko finalized its most recent annual accounts. The company reported a loss of £37.6 million and cautioned that a “material uncertainty” existed due to its inability to secure additional funding. However, Wilko’s directors believed they had “adequate resources” until January 2024 and anticipated securing financing before then. Unfortunately, these projections turned out to be inaccurate. Even a £40 million emergency loan from Homebase owner Hilco failed to avert the collapse. Despite mounting doubts and increasing losses, EY, the auditors, agreed with Wilko’s directors. One of its senior auditors, Victoria Venning, signed off on the accounts. EY asserted that the directors’ methods were “appropriate,” even though acknowledging a “material uncertainty” concerning the company’s viability as a going concern. EY received £269,000 for its services but declined to comment on the matter. Atul Shah, a professor of accounting and finance at City University, criticized EY’s decision, questioning the purpose of the audit if auditors merely accept directors’ opinions. Labour peer and accounting professor Prem Sikka also argued that EY failed to provide an explanation for its agreement with Wilko’s directors, calling for further scrutiny from the Business Select Committee. EY may face questioning from MPs, and Wilko’s directors may be called in for questioning as well. This development adds to EY’s ongoing internal crisis. The firm recently abandoned plans to separate its audit and consulting businesses due to internal conflicts and announced job cuts in its financial services consulting practice. The Wilko situation also raises concerns about the relationship between large companies and their auditors. EY and other members of the Big Four accounting firms have been fined substantial amounts for audit failures. The government is under pressure to reform audit rules following these scandals and recently faced criticism for potentially dropping reform plans from its legislative agenda.
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