Manchester City’s accounts face FRC scrutiny as regulator takes over inquiries
Manchester City’s financial statements are being scrutinized outside of football’s disciplinary process after England’s audit regulator took charge of inquiries into the preparation and audit of the club’s accounts.
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The Financial Reporting Council assesses whether there are grounds for a formal investigation. This distinction is important: preliminary investigations are carried out, but they do not necessarily mean a finding of professional misconduct against the accountants involved.
The intervention follows findings by an independent commission that City had inflated its finances by more than £900m, Ellesheva Kissin reports for the Financial Times. The club rejects these findings and has appealed.
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The FRC is responsible for inquiries about Manchester City
FRC chair Dame Jayne-Anne Gadhia set out the regulator’s position in a letter to Liam Byrne, chairman of parliament’s business committee.
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He said the superintendent was conducting “preliminary investigations” to determine whether a formal investigation was warranted. Responsibility initially rested with the Institute of Chartered Accountants in England and Wales.
The FT reports that the FRC took over the inquiries a day after the commission’s findings were published. His examination covers both the preparation of the City’s financial statements and the audit work conducted by BDO.
The commission found that the club had used commercial arrangements to boost revenue and hide its financial situation over a nine-year period, according to the FT.
These are the findings that the City is challenging. A separate task of the FRC is to assess compliance with accounting and auditing standards, rather than to determine sporting penalties.
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The city application does not prevent regulatory work
The city’s appeal remains an important part of the picture, but the regulator said it doesn’t have to wait until that process is over before proceeding with its work.
The appeal “does not prevent the FRC from continuing with our inquiries and any further action”, it said.
This means that two different processes can run one after the other. One concerns the results of the controversial football commission; the other examines whether the conduct of accountants and auditors warrants regulatory action.
Neither process should be considered a substitute for another. The FRC’s involvement does not establish that BDO has breached professional standards and does not determine the outcome of the City’s appeal.
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The immediate question is whether the material under review provides sufficient grounds to depart from the initial inquiries.
BDO check case is checked
According to the FT, BDO has been conducting audits in Manchester City since 2007. The firm’s work is therefore central to the regulator’s investigation.
The report explains that the FRC can investigate the auditor and certain persons involved in the preparation of the accounts, including directors or employees who at the relevant time belong to a professional accountancy body.
If a formal investigation is opened and violations are found, potential sanctions could include fines or bans for accounting firms or individuals.
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This does not mean that such penalties were proposed or imposed in this case. They describe the possible outcomes of the process before that stage is reached.
The FT reported that neither Manchester City nor BDO immediately responded to requests for comment.
Regulatory restrictions raise broader questions of accountability
Qadhia’s letter also highlighted the limitations of the FRC’s powers.
The category, which includes businesses such as the City, listed companies, banks and insurers, does not qualify as an object of public interest. According to the FT, this affects the regulator’s ability to compel information directly from the club.
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Its powers also do not extend to prosecuting company directors outside professional accountancy bodies.
Byrne argued that the letter exposed flaws in the current system.
“This raises serious questions about their powers to hold companies and directors accountable,” he said.
The importance of football goes beyond the accounts of a club. The case raises questions about how financial statements are audited and who can be held accountable when concerns arise.
A confirmed development so far is the FRC’s decision to monitor inquiries. It remains to be seen whether this will lead to a formal investigation or further sanctions.