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Patisserie Valerie accounts were significantly manipulated with ‘thousands of false entries’ (CAKE)

On Wednesday afternoon, Patisserie Holdings (LSE:CAKE) dropped the bombshell news that ‘thousands of false entries’ had been entered into the company’s books. The high street baker’s forensic accountants have revealed extensive misstatement of its account involving ‘very significant’ manipulation of the balance sheet and profit and loss accounts.

Patisserie first notified investors that potentially fraudulent accounting irregularities had been identified in a statement released on 10 October 2018. As a result, Chris Marsh was suspended from his role as Chief Financial Officer (CFO) and was subsequently arrested by police the next day.

On 12 October, the firm announced it had raised £15.7m in an emergency fund raising that was essential to the company’s survival. Chairman Luke Johnson, a renowned entrepreneur also known for brands such as Pizza Express, put up £20m of his own money after it was discovered the company’s cash position was some £40m adrift.

The Company has since appointed a new Chief Executive Officer (CEO), a new interim CFO, a new non-executive director, a new commercial director and a new production director, as well as other management appointments.

The firm has hired heavy-weight auditors KPMG to assist in carrying out a full review of options available to it in order to recover from the fraud and to ‘preserve value for its stakeholders going forward’.

The company said: “Among other manipulations, this involved thousands of false entries into the company’s ledgers. It will take some time before a reliable trading outlook can be completed while the above work streams progress”.

Patisserie has also confirmed the appointment of RSM as auditors but stresses It will be some time before a restatement of its full-year accounts to end of September 2018 can be completed.

The Financial Reporting Council (FRC) is investigating Grant Thornton’s audit of Patisserie and is also examining Chris Marsh’s role in preparing the company’s financial statements.

The company has also been in discussion with its principal lenders to extend the standstill of its banking facilities beyond 18 January.

Author: Stuart Langelaan

Disclosure: The Author does not own shares in the company mentioned above.

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