AIM listed Renold finds £1.8m accounting error

Renold, an industrial equipment supplier, has postponed its AGM scheduled for 17 July after the company discovered a £1.8m accounting black hole in its gears business unit

The AIM listed company said the accounting issue was an ‘intentional mis-statement’ and related to historical accounting issues related to the three years ending 31 March 2017, 2018 and 2019.  Revised financial statements for the year ending 31 March 2019 will now have to be produced to rectify the issue.

The 154-year-old manufacturer said the errors were detected following an internal review of the gears business unit, which is part of the torque transmission division.  This identified an overstatement of certain asset values and an under-recognition of certain liabilities, which it said was caused by intentional mis-statement of the financial reports at a local level.

A subsequent independent investigation has calculated that adjusted operating profit for the torque transmission division, and therefore the group, was overstated by £500,000 for the year to 31 March 2017, by £400,000 for the year to 31 March 2018 and by £900,000m for the year to 31 March 2019.

The company said the overstatement of £900,000 for the year ended 31 March 2019 represents 5.5% of the adjusted operating profit reported in the preliminary results statement dated 28 May 2019.

The overstatement relates predominantly to working capital balances and the impact on the group's net debt as at 31 March 2019 is limited to an increase of £300,000.

However, expectations for the gears business unit for the year to 31 March 2020 have reduced by £1.1m.

In a statement, Renold said: ‘The independent internal audit investigation, supported by PwC, to verify the above findings and to identify any contributory control weaknesses, is ongoing. The findings of this review will be delivered to the audit committee in due course.’

Deloitte has been Renold’s external auditor since 2015. The firm was paid £700,000 in fees in total last year, according to the 2019 annual report. This included £150,000 of payment for non-audit services, in connection with the company’s recent move from the main listed market to AIM.

By Pat Sweet

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