February 4, 2007 9:55 pm

Auditors queried Torex Retail results

Torex Retail’s auditors raised concerns about the software group’s accounting standards with its board of directors just a few days after the company released its interim results last August.

BDO Stoy Hayward, the accounting firm, wrote to Geoffrey Forster, head of the audit committee on Torex Retail’s board, four days after the software group reported its half-year figures, to raise questions about two cash payments received by the company.

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In a three-page letter seen by the Financial Times, the audit partner on the Torex Retail account asked for explanations of the accounting treatment of the cash payments. The letter also warned that BDO was “continuing to give due consideration to our position as group auditors” and that the company’s responses would form part of the decision.

BDO, which remains as auditors to Torex, is understood to have received written assurances regarding the treatment of the figures.

News of BDO’s reservations emerged after the Serious Fraud Office last week opened an investigation into the Aim-listed company’s affairs just days after it shocked the market with a heavy profits warning and suspended trading in its shares. The SFO is working with the City of London police, the London Stock Exchange and the Financial Services Authority, which is looking at trading in the company’s shares.

The profits warning has exposed bitter divisions on Torex Retail’s board. Neil Mitchell, the chief executive who has been at the company just five months, was last week asked to step aside while Chris Moore, the chairman, also stepped aside. Both men remain on the board.

Mr Mitchell has since identified himself as the leader of a group of Torex “whistleblowers”, executives who had taken their concerns to the SFO.

The company surprised the market with its admission last week that net debt had risen to £203m. Torex Retail had said in late summer that net borrowings of £148m were expected to fall during the remainder of the year with new business wins, the completion of software roll-outs and the annual renewal of maintenance contracts.

Concerns about the financial health of Torex Retail mean that three audit firms are now working on finalising the company’s full-year accounts for the year to December 31. They include KPMG, which is working on behalf of Torex Retail’s bankers; Deloitte, which was recently brought in by Torex Retail, and BDO.

BDO declined to comment. Torex Retail did not respond to requests for comment.

Additional reporting by Barney Jopson and Tom Braithwaite

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