The Financial Reporting Council (FRC) announced Friday it has commenced an investigation into Deloitte over its audit work of U.K. car dealership chain Lookers.
The FRC said it is investigating the financial statements of Lookers for the years ended 2017 and 2018.
“The investigation will be conducted by the FRC’s Enforcement Division under the Audit Enforcement Procedure,” the organization said. It did not provide any further details.
Announcement of the investigation follows a tumultuous few months for Lookers. In November 2020, the company disclosed in its annual report a £45.5 million (U.S. $60.5 million) loss following discovery of accounting fraud by a former employee. The fraud, totaling around £327,000 (U.S. $435,000), was perpetrated by an unnamed individual who is now the subject of a criminal investigation, the company said.
According to Lookers, the fraud resulted in profits being overstated by £25.5 million (U.S. $33.9 million) over several years, including by £10.9 million (U.S. $14.5 million) in 2019 alone. Additionally, Lookers disclosed a £21.8 million (U.S. $29 million) shortfall, “of which £8.3 million related to the previously unreported 2019 financial statements and £13.5 million related to prior years,” the company said.
After 14 years as Lookers’ auditor, Deloitte indicated its intention to resign in June 2020 following the publication of the 2019 results, Lookers announced.
“We take this investigation seriously and are fully cooperating with the Financial Reporting Council,” a Deloitte spokesperson said of the regulatory probe. “Audit quality is our priority, and we are committed to maintaining the highest professional standards.”