It was only a matter of time before Grant Thornton U.K. faced some sort of legal action for being the auditors of cake shop Patisserie Valerie while a massive accounting fraud was being committed right under their noses.
According to the Financial Times on Jan. 8:
The liquidators of Patisserie Valerie are suing Grant Thornton for £200m over alleged negligence in its audits of the café chain that collapsed following a suspected significant accounting fraud.
The lawsuit is set to be one of the largest brought against a mid-tier accounting firm in the London courts and would be a serious blow to Grant Thornton, the UK’s sixth-largest accountant. The firm audited Patisserie Valerie for 12 years but failed to spot an alleged manipulation of its books.
Grant Thornton’s audits of Patisserie Valerie over the three years before the collapse are also under investigation by regulators at the Financial Reporting Council.
“The liquidators . . . have been advised that Grant Thornton were negligent in the preparation and conduct of the 2014 to 2017 financial statements,” said FRP Advisory, which is liquidating the bakery chain, in a report to creditors. It said it had engaged lawyers at Mishcon de Reya to sue the audit group for damages of about £200m.
FRP Advisory blamed “large accounting misstatements” for Patisserie Valerie’s board “being unaware that the group has insufficient funds to continue to trade,” FT reported.
Of course GT is pointing fingers back at Pat Val, saying its auditors were duped and the lawsuit “ignores the board’s and management’s own failings.”
The bakery chain, which collapsed in January 2019, discovered accounting irregularities in October 2018, which ended up totaling £94 million.
The U.K.’s audit cops—Financial Reporting Council—said in November 2018 it was investigating Grant Thornton’s audits of Patisserie Valerie for 2015 to 2017.
Last September the FRC fined Deloitte U.K. a record £15 million, and ordered Big D to pay an additional £5.6 million to cover the costs of the FRC’s investigation and the costs of an independent disciplinary tribunal, for the firm’s dubious auditing of Autonomy, the U.K.-based software company that was acquired by Hewlett-Packard in 2011 and was involved in an epic accounting fraud.
Some U.K. observers have told us that GT could wind up getting a bigger fine from the FRC for Pat Val than Deloitte did for Autonomy. And these same people say that while Deloitte can obviously handle and survive such a large fine, a similar-sized penalty could do some huge damage to the future of Grant Thornton U.K.
We’ll see.
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