Ted Baker's inventory has been overstated by between £20 million and £25 million, the company has said.
The board has brought in lawyers and independent accountants to assess the issue, which the company insisted will have no cash impact and only relates to previous years.
Freshfields Bruckhaus Deringer will now undertake a review of the issue, reporting back to independent director Sharon Baylay, a marketing executive who joined the board of Ted Baker last year.
Shares plunged 52p to 345.6p in early trading on Monday.
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The company added: "All costs and fees associated with completing the independent review will be expensed in the period incurred and clearly identified as such."
Analysts suggested the move is the first significant step taken by new finance chief Rachel Osborne, who joined from Debenhams in October, to get to grips with the company's accounts.
Private equity firm DBAY has called for the backing of Eddie Stobart shareholders ahead of a crunch vote over its £55 million bid to buy the trucking firm, saying the move is needed to "safeguard jobs".
Douglas Bay Capital Fund (DBAY) has agreed the move to buy a 51% stake and take control of the Carlisle-based logistics firm.
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It said it was highlighting its commitment to Eddie Stobart after buying more shares to take its current stake in the business to 29.9% ahead of a vote on the deal on Friday December 6.
The message follows reports that rival bidder Andrew Tinkler, the former chief of Stobart Group, will lodge an appeal with the Takeover Panel aimed at preventing the crucial vote taking place later this week.
Last week, Mr Tinkler's vehicle, TVFB, said it had shareholder backing for a £70 million refinancing deal to save the distribution firm.
Property development giant Capital & Counties (Capco) has completed the £425 million sale of Earls Court to investment firms APG and Delancey.
Capco said the sale of the West London development site, which had seen its value halve over the past four years, will provide it with an initial £156 million cash boost followed by £211 million over the next two years.
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The joint venture involving APG and Delancey snapped up the site ahead of retail tycoon Nick Candy, who had been in early talks with Saudi Arabia's Public Investment Fund regarding a joint offer.
The Earls Court exhibition centre was knocked down by Capco in 2015 to make way for the development project.
FTSE 250 firm Capco said it will now convert to become a real estate investment trust (REIT) following the deal, as it focuses on its central London portfolio.
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