Watchdog considering formal investigation into WHSmith profit overstatement

An independent review by Deloitte found revenues were overstated and errors had been made. Chief executive Carl Cowling stepped down following the review.

After accounting errors in the US division were discovered in August, PwC flagged WHSmith’s statement to the Financial Reporting Council (FRC) as standard practice, according to the Financial Times.

The regulator reviews similar situations of companies’ accounting problems and examines whether to launch a formal investigation. The FRC has so far not decided to open a probe into PwC’s auditing at WHSmith.

The FRC can fine companies and ban individual auditors if industry standards haven’t been met, but it usually gives discounts for cooperation and engagement from the outset.

It is currently looking into 27 mostly audit-related cases, including the collapse of cake retailer Patisserie Valerie and finance group Greensill Capital.

PwC signed off on WHSmith’s accounts for the three years, which it had disclosed an overstatement of profits by booking supplier income too early.

A backdrop of “target-driven performance culture” in the US business was a factor in the error, but the UK and the rest of the world divisions were unaffected.

The US team is set for a major overhaul and the profit for this division is said to be between £5m and £15m, down from a £25m guidance set in August.

WHSmith chair Annette Court said: “Our priority now is to rebuild trust and credibility and to improve the performance and profitability of our North America division. 

“We are confident that the actions we have taken and will continue to implement over the months ahead will ensure a strong foundation for the business going forward.”