Halfords accounts change puts KPMG in spotlight

A £12m writedown by Halfords has brought fresh scrutiny of the record of Peter Meehan, the KPMG partner who audited collapsed government outsourcer Carillion.

The cycles and car parts retailer has adjusted its accounts to remove £11.7m of inventory costs from its balance sheet following a review of its half-year figures by its new auditors, BDO.

The business was audited by Mr Meehan until 2018 when he was suspended amid a regulatory investigation into KPMG’s audits of Carillion. Mr Meehan was lead auditor for Carillion and appeared in front of MPs investigating its collapse in January 2018.

Halfords said there had been a historic “misapplication” in its accounting treatment of inventories, which was “not in line with the group’s accounting policy”. The error meant Halfords had overstated its retained earnings and net assets going back a number of years, according to the company’s interim results, which were published on Thursday.

The correction did not have an impact on Halfords’ profits, which fell £12.8m to £58.8m last year. However, a person close to the matter said it had affected the company’s balance sheet, because some operational costs, such as warehousing, had been classified as inventory.

The retailer has issued three profit warnings this year, most recently blaming weak consumer sentiment and poor summer weather. Profits in the six months to September 27 fell 2.5 per cent to £27.5m.

BDO took over the audit of Halfords this year from KPMG, its auditor since 2009. Mr Meehan audited the company between 2014 and 2018. He was suspended from KPMG late last year. The industry regulator, the Financial Reporting Council, has been investigating concerns that some documents in the Carillion audit file were backdated. The probe of the conduct of Mr Meehan and a number of his more junior team members is expected to conclude in January.

A person close to KPMG said Mr Meehan was replaced on his audits when he was suspended, handing over to some of the firm’s most experienced auditors. Mr Meehan was replaced by Mike Froom as Halfords’ auditor last year before BDO took over the work.

KPMG declined to comment. Mr Meehan did not respond to a request for comment.

Kate Calvert, an analyst at Investec, said she did not regard the change as an issue. “It doesn’t impact cash, and companies do look at cost allocation and reallocate from time to time,” she said. The issue was not raised on a call between company managers and investors that followed the publication of the half-year results. 

The company’s audit committee is chaired by retail executive David Adams, who has held senior positions at House of Fraser and Jessops, among others. However, earlier this year proxy voting agency ISS recommended shareholders abstain from a vote to reappoint him because of his tenure as chairman of Conviviality, a drinks retailer that collapsed in 2018 after revealing a £30m unpaid tax bill. The failure of Conviviality — another KPMG audit client — is the subject of an ongoing investigation by the FRC.

Halfords declined to comment.