Accounting firm Grant Thornton may face a legal claim after KPMG discovered the consolidated accounts of embattled bakery chain Patisserie Valerie were overstated by £94m.
In a statement released today, the big four audit firm said the bakery chain needed to consider whether there may be sufficient grounds to establish potential legal claims against a number of parties including Grant Thornton, who is also an auditor to KPMG.
As KPMG can not consider the legal claim against its own auditor, the firm has proposed the appointment of an additional administrator who will review all potential legal claims.
In January, Grant Thornton was put under investigation by the Financial Reporting Council for its handling of Patisserie Valerie’s accounts for the years ended 30 September 2015, 2016 and 2017.
Severe misreporting of Patisserie Valerie’s accounts was first suspected when forensic accountants looked into the company’s figures in January and said the fraudulent activity discovered in October was worse than initially thought.
According to KPMG’s analysis, Patisserie Valerie’s intangible assets were overstated by £18m, its tangible assets by £5m and its cash position by £54m. Prepayments and debtors were overstated by £7m while its creditors were understated by £10m.
The figures do not include the company’s debt to the HMRC as it could not be quantified due to the misstatement.
HMRC issued Patisserie Valerie with a winding up petition in October due to the unpaid tax bill and prior to this, the August 2018 management accounts showed net assets of £108m. After deducting the £94m, according to the directors, this left net assets of £14m including implied cumulative net trading losses brought forward of £21m.
In January, Patisserie Valerie fell into administration and immediately closed 71 loss-making sites. After appointing KPMG, the company was bought by Irish equity firm Causeway Capital Partners (CCP) for an undisclosed sum and its subsidiary Baker and Spice to the Department of Coffee and Social Affairs for a total consideration of £2.5m.
Its former chief financial officer Chris Marsh was arrested and under investigation by the Serious Fraud Office but was later released without charge.