Sky News has learnt that EY, KPMG and PricewaterhouseCoopers (PwC) have all ruled themselves out of the process because of potential conflicts of interest and reputational issues relating to the company’s corporate governance, according to insiders.
Deloitte, the other member of the quartet which dominates the UK’s audit market, is also said to have opted not to participate in the process, although it was unclear on Thursday whether it had ultimately decided to do so.
The issue provides further evidence of tensions in the UK audit market as it braces for profound reforms amid growing political and public scrutiny of the industry, following the collapse of prominent companies such as Carillion and BHS.
The Government has asked Sir John Kingman, the former Treasury mandarin, to undertake a review of the Financial Reporting Council, the audit regulator, while competition watchdogs are also evaluating whether to launch a fresh probe into the industry.
Sports Direct’s requirement for a new auditor has arisen because Grant Thornton has held the role since before the company floated on the London Stock Exchange in 2007.
Phil Westerman, the partner at Grant Thornton responsible for signing off Sports Direct’s accounts has himself undertaken the work for five years, meaning he is obliged to step aside to preserve the independence of the firm’s work.
In its annual report published earlier this year, Sports Direct said it had “requested [Mr Westerman’s] term be extended by one year to cover the FY19 audit” and that it intended to appoint a successor by the end of 2018.
“We have made the FRC aware of our intentions and have consulted with our major shareholders over the extension of his term, who have been supportive of this, subject to the necessary procedures to ensure this remains compliant with the Ethical Standard requirements,” the annual report said.
At its AGM in London this week, Sports Direct received overwhelming shareholder support for a resolution to extend Grant Thornton’s term.
One source insisted that the process of identifying a new auditor was “competitive”, although it is rare for a FTSE-250 company to have its books overseen by an accountant drawn from outside the big four.
KPMG is thought to have declined to participate in the tender process because it audits JD Sports Fashion, Sports Direct’s rival.
EY recently acted as administrator to House of Fraser, which it sold to Mr Ashley’s company, and is said to have concluded that taking the role would attract accusations of a conflict of interest.
Deloitte and PwC, meanwhile, are understood to have had concerns about the reputational risk of auditing Sports Direct.
This week, Sports Direct was ordered by a High Court judge to hand over documents to the FRC as part of an inquiry into Grant Thornton, sparking an angry response from the retailer.
Ahead of its AGM, Sports Direct announced a series of boardroom changes that it said would bolster corporate governance – an area which for years has made it a lightning rod for criticism from City investors.
The big four firms all declined to comment on Thursday evening.
Keith Bishop, a spokesman for Sports Direct, did not respond to a request for comment.