Deloitte, a leading global professional services firm, is under investigation by the UK's Financial Reporting Council (FRC) for its auditing of the now-defunct clothing retailer Joules. The FRC announced on Tuesday that its probe would cover the auditing of Joules's accounts for the financial year ended May 2021, but did not provide details about the specific focus of the investigation.

The accounting firm could face a substantial fine from the FRC if its audit of Joules is determined to have fallen short of required standards. Additionally, the regulator has the authority to compel auditors to take action to prevent a recurrence of any issues, such as providing staff training or enhancing processes.

Deloitte, which earned an audit fee of £225,000 for the 2021 financial year, had been auditing Joules since its listing on London's AIM market in 2016. The clothing retailer, whose clientele included celebrities like Princess Catherine and Taylor Swift, faced financial difficulties last year as rising freight rates and increasing wages contributed to the collapse of its 132-store business. Next, a British multinational clothing retailer, acquired most of Joules's assets for £34 million in December, allowing founder Tom Joule to retain a 26% stake in the company.

The FRC is also investigating the audits of several other companies that have entered administration, including EY's auditing of Made.com, PwC's audits of property group Intu, Mazars' work at Studio Retail Group, and BDO's auditing of construction group NMCN.

Deloitte has stated that it will "co-operate fully" with the investigation and remains "committed to the highest standards of audit quality." The Big Four firm, whose UK partners reportedly earned an average of over £1 million last year, is currently under investigation for its audits of bus and rail operator Go-Ahead Group and car dealership Lookers. Last year, the FRC imposed two separate fines on Deloitte for substandard audits—one of more than £1 million for errors in its auditing of insulation and construction group SIG, and another of £2 million after the firm admitted to rule breaches during its audit of outsourcing group Mitie.

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Source: https://www.ft.com/content/86e7d370-21b1-4464-9d0f-fbf92b559a4d