FRC takes control of Manchester City audit inquiry

The UK audit regulator has confirmed it is leading inquiries into accounting irregularities at Manchester City. The Financial Reporting Council (FRC) stated in a letter to the House of Commons business select committee that it had taken over "regulatory consideration" of the case from the Institute of Chartered Accountants in England and Wales on 30 September.

Preliminary Enquiries Begin

While no formal investigation has started, the FRC is making inquiries into the case. This development follows an independent commission finding Manchester City guilty of charges relating to breaches of the Premier League's financial regulations between the 2009-10 and 2017-18 seasons. According to the BBC, the commission found the club artificially inflated its financial position by more than £900m. Manchester City are appealing the verdict, arguing it contains "material errors, of law, principle and fact and is unsafe".

The FRC has greater resources and powers to apply sanctions if it finds evidence of violations. Although it routinely oversees accounting standards at larger institutions such as listed public companies, it does not typically oversee football clubs. The regulator can examine the conduct of BDO, Manchester City's auditors, to determine if the audit complied with rules. It can also sanction individuals, such as directors or employees, if they are members of professional accountancy bodies.

MP Highlights Regulatory Gaps

Liam Byrne, the Labour MP for Birmingham Hodge Hill and Solihull North and chair of the business select committee, had previously written to the FRC chair requesting an investigation into why the audit system failed to uncover alleged misstatements. "The findings raise a fundamental question: how could the established system of audit and regulatory scrutiny fail to uncover alleged misstatements of such a scale over nine years?" Byrne asked in his letter.

Byrne noted that the issues came to light through media reporting rather than the established audit and accounting process. Following the FRC's response, Byrne stated on X: "The regulator's letter exposes gaps in its ability to compel evidence from the club and pursue directors who fall outside its disciplinary rules."

He added, "This raises serious questions about the powers available to hold companies and directors to account. The government has a responsibility to explain why reforms to close these gaps were abandoned - and what will now be done to strengthen accountability."

Auditor and Club Response

The independent commission found that Manchester City gave a "misleading impression" of the scheme used to disguise the origin of shareholder funds injected into the club to its auditors, who were "unaware" of the scheme. BDO, the UK's fifth-biggest accounting firm, declined to comment. The firm claims to be a market leader in football, advising more Premier League and Championship clubs than any other firm.

The FRC's involvement means that accounting enforcement could proceed alongside the ongoing appeal of the 115 charges case. The regulator stated that City’s appeal does not stop the enquiries, although the FRC will take the appeal into account. No potential punishment or timetable has been shared.

Why it matters

This development marks a significant escalation in the scrutiny of Manchester City's financial history. By taking control of the inquiry, the FRC brings a regulatory body with broader powers into the fold, potentially leading to sanctions against auditors or club personnel. The case also highlights broader concerns about the effectiveness of current audit regulations in professional football, prompting calls from lawmakers for stronger enforcement mechanisms to ensure corporate governance standards are met.

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Sources

• ft.com: Subscribe to read
• sportbible.com: New Man City investigation set to be launched after MP highlighted major concern
• bbc.co.uk: Audit regulator looking into Manchester City accounting - BBC News

This article was drafted with AI assistance and checked against the sources above. Company claims are reported as claims. Cover image is AI-generated.