WH Smith Recommends PwC Re-election Amidst Accounting Scandal
Despite a significant accounting error that led to a substantial drop in its share price, embattled UK retail giant WH Smith is urging its investors to re-elect its auditor, PwC. This recommendation comes as the company navigates the fallout from a financial misstatement that saw its profits overstated by £30 million.
In a notice released discreetly on Christmas Eve, the FTSE 250-listed company announced that its board of directors would “unanimously recommend” the reappointment of the prominent accounting firm, PwC, at the upcoming annual shareholder meeting. This endorsement stands even though PwC failed to identify a critical flaw in WH Smith’s financial reporting.
The accounting blunder involved the premature recognition of supplier income within the company’s US operations. This meant that earnings, which should have been attributed to subsequent financial periods, were incorrectly booked as soon as a deal was concluded. This misstatement inflated the reported profits, creating a misleading picture of the company’s financial performance.
The revelation of this accounting oversight sent shockwaves through the market, causing WH Smith’s shares to plummet by more than 40%. The company was subsequently compelled to postpone the release of its annual results, pushing them from November to December. The scandal also led to the departure of its Chief Executive, Carl Cowling.
The recommendation to retain PwC as the auditor comes at a time when WH Smith is actively pursuing the recovery of over £1.5 million in bonuses and stock awards from both former CEO Carl Cowling and ex-Chief Financial Officer Robert Moorhead. Moorhead had stepped down in November 2024.
According to the company’s annual report, Cowling was overpaid a total of £516,000 in cash bonuses. Additionally, he received 60,182 shares, which, at the company’s current share price, are valued at £384,563.
Similarly, Moorhead was found to have received an overpayment of £372,000 in cash bonuses, along with 43,739 shares worth approximately £279,492.
WH Smith has also stated that following the discovery of the accounting error, they no longer classify Moorhead as a “good leaver” for the purposes of any unreceived share awards. This decision has significant implications for his entitlement to future equity compensation. Consequently, the company’s share price remains significantly depressed, trading at around 43% lower than its pre-scandal levels.
Key Takeaways from the WH Smith Situation:
- Auditor Reappointment: Despite a significant accounting error, WH Smith’s board is recommending the re-election of its auditor, PwC.
- Financial Misstatement: The company overstated profits by £30 million due to the early recognition of supplier income in its US business.
- Market Impact: The scandal caused a sharp decline of over 40% in WH Smith’s share price.
- Leadership Changes: Former CEO Carl Cowling resigned following the accounting blunder.
- Bonus and Stock Clawbacks: WH Smith is seeking to recover over £1.5 million in bonuses and stock awards from former executives Carl Cowling and Robert Moorhead.
- ‘Good Leaver’ Status: The former CFO, Robert Moorhead, has been reclassified, impacting his unreceived share awards.
The ongoing situation highlights the critical role of robust internal controls and diligent auditing in maintaining investor confidence. As WH Smith seeks to rebuild its reputation and financial standing, the decisions made regarding its auditor and the recovery of executive compensation will be closely scrutinised by the market. The company faces a considerable challenge in restoring its share price and reassuring stakeholders after this significant financial misstep.
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