Some HN assets were depreciated too slowly and the write-off of revenue items in prior years was 'incorrectly' capitalised, according to notes to the accounts.
These show that pre-tax losses at the Knightsbridge department store in London more than doubled to pounds 3.56m in the 13 months to 3 October, the day the business changed hands.
The treatment of depreciation is at the heart of a dispute which has delayed the final completion of the pounds 60m sale of HN. The deal was announced more than 12 months ago.
According to Simon Gardner, HN finance director, independent experts at Arthur Andersen are expected to come to a ruling on the dispute, binding on both sides, by the middle of this month. Between pounds 500,000 and pounds 1m is at stake.
Neither the two sides' auditors - KMPG Peat Marwick and Price Waterhouse - nor the principals themselves, could agree a price.
The HN losses compare with restated losses of pounds 1.67m in the previous 12 months. The deterioration was due to pounds 2.84m of stock write-offs and provisions, and a pounds 700,000 provision to meet health and safety legislation in the Knightsbridge store.
At the operating level, losses were reduced from pounds 1.76m to pounds 86,000. Sales grew from pounds 36.9m to pounds 40.2m - equivalent to a 0.4 per cent increase in monthly turnover.
The highest-paid director in the period received pounds 701,000. This is understood to be the managing director, Richard Maney, who has since left the company.
HN has since come back into profits in the six months to 31 March, according to Mr Gardner. It is undergoing extensive refurbishment.
A small Harvey Nichols boutique is due to open later this year in Hong Kong, where Mr Poon's company, Dickson Concepts, is based.Reuse content