FRC launches investigation into Lookers audit

FRC launches investigation into Lookers audit

Regulatory body has launched an investigation into Deloitte’s auditing practices for the years ending 2017 and 2018

FRC launches investigation into Lookers audit

The Financial Reporting Council (FRC) has launched an investigation into Deloitte for its audits of the national car dealership Lookers.

Set to be conducted by the body’s enforcement division under the audit enforcement procedure, the investigation will cover Deloitte’s audits of Lookers for the years ending 2017 and 2018.

The decision was made at a meeting of the Conduct Committee on February 23.

“We take this investigation seriously and are fully cooperating with the Financial Reporting Council,” said a spokesperson from Deloitte. “Audit quality is our priority and we are committed to maintaining the highest professional standards.”

The firm stepped back in June 2020 as the company’s auditor after 14 years and was replaced by BDO.

In an official letter, Deloitte said there was a “considerable gap” between financial controls seen within Lookers compared to other companies of similar scale and complexity.

The auditor said the company’s progress was “falling short” of what the dealership had committed to from financial recommendations in previous audits.

The FTSE 250 company had a series of accounting issues in 2019 after it had identified a number of “potential fraudulent transactions”.

A forensic investigation into fraud and financial irregularities by Grant Thornton forced the company to make £25.5m of adjustments. The car dealership said £8.3m related to the previously unreported 2019 financial statements and £13.5m to prior periods.

Following the initial investigation, in August 2020, the company announced the scope of the audit had expanded.

The company announced on July 1 last year that it had decided to temporarily suspend its shares due to delays in publishing its financial results before the deadline. The suspension was lifted at the end of January and shares increased by 77 percent when it relisted.

The FRC’s investigation comes two weeks after the Financial Conduct Authority (FCA) announced it had decided to close the investigation into Lookers Motor Group for the possible miss-selling of products and associated issues relating to potential customer detriment during January 1 2016 to June 13 2019.

The regulator said it had made its concerns clear about the “historic culture, systems and controls” of the group but would not impose penalties.

As a result, the group released £10.4m it had set aside for possible penalties.

“It is an important time for Lookers as we emerge from a difficult period dealing with both the challenges of our legacy issues and the pandemic,” said Mark Raban, CEO at Lookers, in a statement following the announcement of the FCA’s dropped investigation.

“We are pleased that the FCA has decided to close its investigation and we can now look forward and continue to build our business for the benefit of our customers and other stakeholders.”

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