The Financial Reporting Council (FRC) has announced an investigation into Deloitte’s audit of the financial statements of Mitie Group, just days after almost a third of shareholders opposed the firm’s reappointment at the FTSE 250 services company
The regulator said the investigation, carried out under the FRC’s audit enforcement procedure, will look at whether there have been any breaches of relevant requirements in relation to the statutory audits of the consolidated financial statements of Mitie Group for the years ended 31 March 2015 and 2016.
Last week, 30% of shareholder votes at the company’s annual general meeting were against the reappointment of Deloitte, which has been Mitie’s external auditor since its market listing in 1987.
In its 2017 annual report, Mitie said it had held an accounting review during the year and ‘had found that improvements were required in the approach to risk management and internal audit and has made changes in both those areas’.
As part of this review, KPMG was asked to carry out a detailed review of the policies in relation to long-term complex contracts, mobilisation costs, accrued income and work in progress.
The accounting review identified a number of prior year errors that, due to their materiality, required the restatement of results for periods before 31 March 2017. This led an error of £60.5m, of which £26m is a restatement of goodwill impairment in FY16, £20.9m relates to other adjustments in FY16 and £13.6m relates to earlier years.
As a consequence, the net impact of prior year adjustments in FY16 is £20.9m before other items.
Mitie said a key finding of the accounting review was that the group’s accounting was less conservative than its peers. In response, £39.7m of additional asset write-downs were recognised which were more judgemental in nature, and would result in no future cash outflow.
In a statement, Deloitte said: '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.'