Baugur-backed jewellery retailer Aurum, which owns Mappin & Webb, Goldsmiths, Watches of Switzerland and, has appointed Ernst & Young to review the business.

A source said the review could lead to a sale of the company “if the right price were offered”, but emphasised that it was one of several possible outcomes.

The appointment is understood to have been spearheaded by Aurum’s management and was not forced upon it by its backers, which include a consortium of banks and its largest shareholder Baugur.

Aurum chairman and Baugur shareholder Don McCarthy declined to comment on the appointment of Ernst & Young.

The recession has hit the jewellery sector with force. Industry observers said jewellery was the worst performing sector during the recession of the early 1990s and took four years to recover. Earlier this month, Signet – owner of H Samuel and Ernest Jones – and celebrity jeweller Theo Fennell both revealed double-digit like-for-like sales slumps over Christmas.

Baugur has been locked in talks with its Icelandic backers since the collapse of Iceland’s banking system in October.

This week, the resignation of Iceland’s beleaguered government led to concern that the recovery of the country’s finance system could be slowed.

But one source close to the situation said Baugur’s negotiations are with the banks and not the government. “It is not a political situation, it is a financial one,” he said. “The banks are owned by the creditors to the banks.”

Baugur has been at pains to emphasise that it is working with its banks to ensure the long-term value of its retail assets, which also include Mosaic, Hamleys, House of Fraser and Iceland.

Aurum has 185 stores and employs 2,100 staff. In the year to January 2008, turnover rose 7.7 per cent to£261.7m, and pre-tax profits were£800,000 – up£10.4m from a loss of£9.6m the previous year.

Former Aurum chairman Jurek Piasecki, who left in a surprise departure in October 2007, sold a 36 per cent stake to Baugur in May 2004.

Mosaic is understood to have received 22 requests for its information memorandum on Shoe Studio. The deadline for the first round bids is February 6. Shoe Studio is forecast to make an£8.4m EBIT loss for the year to January 2009.