RSM removes top management after accounting error
7 Jan 2020
Mid-tier firm audit firm RSM has been forced to overhaul its executive team following the discovery of errors in the way in which it accounted for professional liability claims provisions going back several years
7 Jan 2020
In the RSM accounts for the year ended 31 March 2019, which have just been filed with Companies House, the firm reported a 6.7% rise in revenues to £335m, with group profit before tax hitting £9.1m, compared with a £100,000 loss the previous year while flagging a significant accounting error.
In a footnote to the accounts, RSM admitted that a review of the accounting for professional liability claims provisions had identified an error in the application of group’s accounting policy affecting the 2018 and earlier year ends.
The issue relates to historical claims provisioning, and has no impact on the group's cashflow, RSM confirmed.
As a result, RSM has reported a £3.798m net profit impact of the adjustments in 2017, and a £5.953m net profit impact in 2018.
The accounts state: ‘The directors have investigated this error and have a plan in place to strengthen the related controls and reporting procedures.’
RSM also confirmed that it had 'made appropriate regulatory reports'.
A spokesperson at the Financial Reporting Council (FRC) told Accountancy Daily: ‘RSM has notified the FRC regarding matters included in its 2019 consolidated accounts.’
RSM is audited by top 20 firm Moore Kingston Smith, who declined to comment.
In the latest accounts, the independent auditor’s report signed off by Kingston Smith senior statutory auditor, John Staniforth, stated that the accounts gave ‘a true and fair view of the state of the limited liability partnership’s affairs as at 31 March 2019 and of its profit for the year then ended’.
He added that the ‘members had not disclosed in the financial statements any identified material uncertainties’, adding that the auditors ‘evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the members’.
The firm took swift action to overhaul its top management and removed the three most senior members of the board, including chief executive David Gwilliam [pictured], chief finance officer (CFO) Nigel Tristem and chief operating officer (COO) Robert Ross from the management team. However, all three are still partners and members of the firm’s LLP.
Managing partner Jez Filley has been appointed as acting CEO, Andrew Westbrook as acting chief finance officer and Jill Jones as acting chief operating officer.
An RSM spokesperson said: ‘By way of response to these issues, the board made appropriate management changes.
‘RSM remains in very strong financial health, well placed to capitalise on all the opportunities available to it in the market, and to grow on its success of recent years.’
On professional liability claims, in the accounts RSM estimated the amount of professional liability claims provision totalled £2.012m (2018: £4.52m) but said that the ‘settlement timing’ was uncertain’, adding that the majority of this would be settled by insurers, amounting to £1.96m.
The accounts also stated that ‘provision is made on a case by case basis in respect of the estimated costs of defending and concluding claims. Where the LLP expects some or all of a provision to be reimbursed, the reimbursement is recognised as a separate asset but only the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement net of any expected reimbursement’.
RSM has 128 partners and over 3,400 professional staff in the UK. It is ranked seventh in the Accountancy Daily Top 75 Firms Survey and recently won the audit contract for Sports Direct from Grant Thornton after all the Big Four firms said they were conflicted out and could not take on the listed entity’s statutory audit.
Report by Pat Sweet, Sara White