- 22 December 2025
WHSmith’s accounting problems in its North American business have developed from an internal controls issue into a broader test of market confidence and corporate governance. The company has delayed publication of its annual results, confirmed plans to recover overpaid executive bonuses, and disclosed that the Financial Conduct Authority (FCA) has opened a formal investigation into whether WHSmith complied with UK listing and disclosure requirements.
Against this backdrop, Carl Cowling stepped down as Group CEO on 19 November following an independent review by Deloitte, with Andrew Harrison appointed as interim Group CEO while a permanent successor is sought. The episode is a timely reminder that boards, investors and regulators ultimately rely on the credibility of financial reporting and on the systems, controls and culture that sit behind the numbers.
What happened at WHSmith?
Accounting issues within WHSmith’s North American division were first disclosed in August, when the company issued a profit warning and reduced its forecast for trading profit in the region from approximately £55 million to £25 million. The announcement triggered a sharp fall in the company’s share price of around 40% on the day, wiping almost £600 million off its market value.
Following that initial disclosure, WHSmith commissioned Deloitte to undertake an independent review of its US operations. Subsequent updates revealed further accounting errors, leading the company to revise its guidance again. WHSmith has since indicated that trading profit from its North American business is now expected to fall within a range of £5 million to £15 million.
The company also delayed publication of its annual results on two occasions, citing the need to complete work arising from the review. In November, Carl Cowling resigned as CEO, bringing to an end a six-year tenure in the role and an 11-year career with the business. He will remain with the company until the end of February 2026 to support an orderly transition.
In announcing his resignation, Cowling said that while the issues arose in the North American division, he recognised the seriousness of the situation and felt it was right to step down as Group CEO. Chair Annette Court described the matter as extremely serious, apologised for the shortcomings identified, and stated that the board was strengthening controls, governance and reporting procedures across the group.
Regulatory scrutiny
WHSmith has confirmed that the FCA has opened a formal investigation to assess whether the company complied with its disclosure obligations as a listed company. The regulator has said it is examining whether appropriate information was shared with the market in a timely manner. No conclusions have yet been reached.
According to WHSmith, Deloitte identified problems with the accounting treatment of supplier income in the North American business. The review noted weaknesses arising from a decentralised divisional structure, a limited level of group oversight of finance processes in North America, and insufficient systems, controls and review procedures relating to supplier income across both commercial and finance functions.
These findings raised concerns not only about technical accounting judgements, but also about the robustness of internal controls and the extent of board-level visibility over complex revenue streams.
The most significant issues related to the recognition of supplier rebates. In the retail sector, suppliers commonly offer rebates linked to sales volumes, product mix, marketing support or promotional activity. These arrangements can be complex, with multiple conditions and tiered thresholds.
WHSmith has indicated that some rebate income that should have been recognised in a later accounting period was recorded earlier than appropriate. Where income is recognised too soon, this can have the effect of overstating performance in the earlier period. The review also identified issues relating to stock valuation.
Comparisons with previous UK cases
The WHSmith episode inevitably invites comparison with earlier UK cases where profit overstatement and revenue recognition issues led to serious consequences. Tesco’s 2014 profit overstatement similarly involved the early recognition of supplier income, while other high-profile corporate failures have highlighted how weaknesses in controls, audit challenge and governance can persist undetected for too long.
Such comparisons should be treated with care. Each case turns on its own facts, and there has been no regulatory finding of misconduct in relation to WHSmith at this stage. Nonetheless, the recurring themes of complexity, pressure to meet targets, and insufficient challenge are familiar to boards and audit committees.
Lessons for boards and audit committees
Scrutiny of complex revenue streams
Boards, and in particular audit committees, should maintain a clear understanding of the most complex and judgement-heavy areas of accounting in their sector. In retail, supplier income and stock valuation are well-known risk areas. Effective oversight requires not only reliance on external auditors, but active questioning of management assumptions, controls and systems.
Culture and incentives
Where performance targets are ambitious, boards must be alert to the risk that control weaknesses or poor judgements emerge under pressure. Strong governance is not about eliminating targets, but about ensuring they are supported by appropriate controls, transparency and escalation routes.
Group oversight in decentralised structures
International and decentralised businesses face particular challenges. The WHSmith case underlines the importance of consistent group-wide finance standards, effective reporting lines, and sufficient resourcing and expertise at group level to oversee local operations.
The wider regulatory context
The episode is also a reminder of the central role financial statements play in market confidence. Following the collapse of Carillion in 2018, the Government committed to significant reform of the UK audit and corporate reporting framework, including replacing the Financial Reporting Council with a new statutory regulator.
Progress on these reforms has been slow. As this case demonstrates, trust in financial reporting depends not only on company-level governance, but on a regulatory system with the authority, resources and powers to act decisively. CGIUKI continues to urge the Government to complete its long-planned reforms to strengthen the UK’s corporate reporting and audit regime.