Red flag raised over Jigsaw accounts after we reveal boardroom exodus

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Red flag raised over Jigsaw accounts after we revealed mass boardroom exodus at fashion retailer where the Duchess of Cambridge used to work

By Ruth Sunderland and Matt Oliver For The Daily Mail

Published: | Updated:

The accounts of fashion chain Jigsaw’s owner have been qualified by its auditors, the Daily Mail can reveal.

It is another blow to the fashion retailer, a favourite of the Duchess of Cambridge, who worked at the company before her marriage.

The business is controlled by Carphone Warehouse founder David Ross, 54, who took over in an attempted rescue deal two years ago.

Chequered career: Grimbsy-born businessman David Ross with ex-partner Shelley Ross

Accountants checking the books of Jigsaw’s ultimate owner have raised a red flag over whether they give a true and fair view of the state of its finances.

The concerns centre around stock which Jigsaw’s owners claim is worth more than £4.5million. 

But the accountants said they were unable to verify that, and so they have given a rare ‘qualified’ audit opinion.

That is highly unusual and only occurs where auditors have very serious concerns. News of the warning on the accounts comes days after the Mail revealed that seven directors have left the Jigsaw board since the beginning of the year.

A boardroom exodus on this scale, leaving the company bereft of almost all its directors, is extremely rare, particularly at a time of crisis. 

Like other retailers, Jigsaw has been devastated by the coronavirus. Following the departure of most of its board whilst already making losses, its future looks uncertain.

The audit bombshell is buried in the accounts of Jigsaw’s ultimate parent company, Mountain Berg Holdings, an investment vehicle which is controlled by Ross.

Mountain Berg owns Jigsaw’s immediate parent company, Robinson Webster, along with some workwear brands, property and other investments. 

Auditor’s rare (but blaring) siren 

A ‘qualified’ audit report may sound dull but in fact is a blaring siren.

It means that the auditors cannot satisfy themselves that the accounts paint a true and fair picture of a company’s finances.

Qualified reports are very rare. The usual criticism is that the auditors fail to raise the alarm over looming scandals and that they turn a blind eye. 

Detractors say they have a conflict of interest because they earn millions of pounds in fees from the companies whose accounts they are supposed to check. 

Valuing stock at fashion companies is not that simple. The basic principle is that stocks are valued in the accounts either at cost price or the price they are expected to fetch, whichever is the lower.

But in the fast moving world of fashion retail, with frequent sales and discounts, the likely selling price can be hard to determine. Stock valuation also proved controversial at fashion firm Ted Baker where auditors earlier this year found its inventory had been over-stated by £58million.

Unusually, despite being a multi-million-pound concern, Mountain Berg’s auditors are a small firm of accountants based in Stamford, Lincolnshire, called Duncan & Toplis. 

The accounts were filed at Companies House in March this year and cover the period from August 23, 2018, to December 31, 2018.

Senior auditor Mark Hindmarch issued the qualified audit report because he and his team were unable to verify stock at Jigsaw owner Robinson Webster that was valued at £4,573,145, plus a total of more than £5.9million at two other overseas companies. In total the auditors said they were ‘unable to satisfy ourselves concerning the inventory quantities of £10,473,870.’

Put simply, the bean-counters raised doubts over huge stocks of clothing, valued at more than £10million. 

The audit firm added that, where other numbers in the accounts relied on the inventory figures, they may also be ‘materially misstated.’ Robinson Webster’s accounts were not qualified. 

Based on the accounts – including the unverified stock figures – Mountain Berg made a profit of just under £5.5million for the twelve months to the end of 2018. It had net current liabilities of more than £136million.

The group’s borrowings include £6million of revolving credit with Secure Trust Bank, which is secured against Jigsaw’s stock and money owed to it from its concessions in department stores. 

A Mountain Berg spokesman said: ‘The inventory balances reported in these accounts have not needed to be adjusted. They accurately reflect the stock that was held by each of the companies in the group at the time.’

According to Mountain Berg’s accounts, Jigsaw made a loss of £4million, not counting exceptional charges, in the year to the end of September 2018.

Losses continued at a similar level last year. Ross’s plan was for a return to profitability in 2021 and in the meantime the documents state he is committed to providing support and funding.

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