Watchdog probes Deloitte audit of Mitie accounts
Britain's accounting watchdog is investigating Deloitte's auditing of Mitie Group, the outsourcing company that issued a string of profit warnings last year.
Mitie, a leading private contractor of pest control, cleaning, security and healthcare services, has written down the value of its business after a new management team found the company had been too aggressive in the way it booked revenue and costs on long-term contracts. The company, who have also been the beneficiaries of a number of governmental contracts involving the running of detention centres for the UK immigration services across the country have now entered into a period of investigation from the Financial Reporting Council (FRC), following claims surrounding Big Four consultancy Deloitte’s accounting of the group.
In the previous month cost-cutting plans had been put into place as a precautionary measure to avoid the news of the FRC probe impacting on profit, as Mitie had suffered a loss of 1% in early London trading. Mitie allegedly used aggressive accounting practices involving “less conservative” customer contracts in comparison to their rivals. At the company’s annual general meeting, the shareholder’s votes did not favour renewing Deloitte’s auditing services, another recent blow to the auditing portfolios of the Big Four, with EY losing out a £1.6 million accounting contract with the BBC in July.
The FRC review will look at Deloitte's conduct during the auditing process, and if any “wrongdoing” is proven then the consulting firm could be referred to an independent tribunal where the auditing giants could face paying an unlimited fine. The UK’s auditing watchdog will now scrutinise the matter even further in order to assess whether any breaches were made to the “relevant requirements” providing that the consolidated financial statements were given for the years March 2015 and March 2016.
The FRC said in July that accounting firms were still not always challenging properly what they are told by companies whose books they check. In the last financial year it handed down £12.5 million ($16.36 million) in sanctions against auditors. An increasing number of accounting and audit practices had been called into question recently, including allegations made by G4S, Serco and Carillion. The FRC has recently reviewed the performance of the top accountancy companies, with fellow Big Four firms PwC, EY and KPMG also the target of a recent tax-evasion report commissioned by the European Parliament in the wake of the Panama Papers scandal.
The FRC has since warned the largest audit companies of misconducts, and informed them of the consequences after discovering the fact that one-third of the accounts were facing deficiencies amongst the top six audit firms in the UK. FRC has seen kept a close eye on Deloitte who, in their 23 most recently investigated audits, have reportedly shown “significant improvements.”
Deloitte commented, “Audit quality is of critical importance to our firm and we are committed to maintaining the highest professional standards. We take this investigation very seriously and will co-operate fully with the Financial Reporting Council.”
