M&C Saatchi posts one-off £6.4m accounting charge

Adverting giant M&C Saatchi has revealed accounting issues first identified by external auditor KPMG have forced the company to take a one-off exceptional charge of £6.4m to its 2019 results

In an unscheduled regulatory statement the company, best known for its campaigns for the Conservative party, said the decision followed an internal accounting review of several of its UK subsidiaries which flagged issues over reporting revenue recognition.

M&C Saatchi said the charge equates to £4.9m of specific issues identified in the review.

‘We believe we have discovered the full extent of the issues, but to be doubly sure, the board is appointing independent advisors to undertake a review of all the group's accounts and accounting systems, as well as setting aside an extra £1.5m as a conservative measure to provide for any potential further items arising. 

‘We expect the independent review to be completed by November this year,’ the company said.

In addition, M&C Saatchi has decided to make an adjustment of £1.4m in respect of its property-related assets as it is in the middle of an office refurbishment.

The internal review followed an independent auditor's report which raised concerns about the accounting controls across the group, reinforcing similar concerns raised by the audit committee.

Saatchi said the internal review confirmed KPMG's concerns and found instances of misapplication of accounting policies in the division, mostly relating to the timing of revenue recognition and incorrect accounting of some assets and liabilities.

In its latest annual report, M&C Saatchi’s audit committee stated: ‘Revenue recognition is a key accounting and risk area for the group. As referred to above, the board is taking forward the development of the group’s accounting systems so that they keep pace with the increasing size and complexity of its business.

‘The adoption of IFRS 15 [Revenue from Contracts with Customers] added to the complexity and resulted in significant additional work for management and the external auditors. The committee has devoted considerable time to reviewing these matters. It is satisfied that the group’s revenue is not materially misstated.

‘The committee has requested that revenue accounting should be a particular area of focus for the on-going enhancements to the group’s accounting systems.’

In the latest update, the company said its recently appointed group finance director, Mickey Kalifa, has appointed a new finance director for the UK division, together with additional senior finance staff, and is about to appoint the company's first group treasurer.

M&C Saatchi runs a network of international advertising agencies. Its statement concluded: ‘We are determined that our strategy of winning new business by starting new businesses will not be undermined by this but recognise that having so many young companies in the group requires extra vigilance.’

According to the 2018 annual report, KPMG was paid £768,000 for audit services, plus an additional £70,000 for non-audit work.

The group's interim results will be announced on 24 September.

Pat Sweet | 13 Aug 2019

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