Major accounting firms have been in the headlines this morning. The Financial Reporting Council (FRC), proactively flexing its muscles as mentioned previously here, announced an investigation into the audit by Deloitte LLP of the financial statements of Mitie Group plc.
It says the investigation, carried out under its Audit Enforcement Procedure, will look at whether there have been breaches of relevant requirements in relation to statutory audits of Mitie consolidated financial statements for the years ended 31 March 2015 and 2016.
Mitie Plc: Hammersmith and Fulham Housing services by Ed Robinson/OneRedEye; courtesy of Mitie
In brief, the stages of the audit enforcement procedure are
- Initial case examination and decision to investigate
- Decision by executive counsel as to whether to issue a decision notice (a notice with the findings and recommended sanction)
- Referral to enforcement committee and decision by the enforcement committee whether to issue a decision notice
- Referral to a tribunal
The FRC notes
The FRC notes that in order for a matter to be referred for investigation by its Executive Counsel under the Audit Enforcement Procedure, its Conduct Committee is required to decide whether there is good reason to investigate an allegation.
A Deloitte spokesperson 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.”
Neither the FRC nor Deloitte was willing to comment further on background or context. A spokesperson for Mitie, a provider of facilities management, and related professional services, duly followed suit.
PwC and NHBC slug it out in court
Elsewhere, PwC and the National House Building Council - the provider of warranties for most new homes built in the UK - are tussling in court. The dispute is over what NHBC contends were overpayments of £41.46m of corporation tax between 2006 and 2015.
The NHBC argues that as its auditor from 2006 and 2016 PwC should have advised it that it did not have to pay corporation tax on increases in the value of investments it had made in index-linked UK government securities.
PwC said: "We can confirm there are court proceedings under way. However we are unable to comment further as the matter goes through the legal process." An NHBC spokesperson said: “NHBC has a clear policy of not commenting on any live legal proceedings.”
Share price slips
The FRC has yet to indicate whether it will be opening another investigation involving PwC's conduct as an auditor. By mid-morning the Mitie share price had slipped by 1.88% to 266.10, according to the London Stock Exchange.
Following its annual general meeting on 26 July, Mitie issued a trading statement for the period from 1 April 2017 to 30 June. It said first quarter trading was in line with expectations and full year guidance is unchanged.
Unaudited group revenue at £535m was 5.5% higher than in the first quarter of the 2017 fiscal year (excluding discontinued businesses), with good momentum building in Security and Engineering Services, in particular.
Recent contract wins include a major grocery retailer, a high-street chemist and a major online distribution company. It adds that another is a three-year extension at Heathrow Airport Group.
New contract wins and its Project Helix transformation plan provide the underpinning for FY2018 guidance. Mitie expects that of its top 20 accounts, only one contract is expected to be re-bid before 2020.
Interim results for the six months ending 30 September will be announced on 20 November.