The initial review identified several areas of significant concern relating to the recognition of historic accrued income; impairment of trade debtors; and gross margins being achieved against prior expectations.

The board says it estimates the combined adjustments will lead to around a £10m reduction in profitability when compared with current market expectations, with the company reporting a loss for the current financial year.

As regards accrued income, in a statement Yü said in line with normal market practices, the group routinely invoices revenue in the first working days following the month for which the consumption of energy relates, and accrues such revenue in the balance sheet within the accounts receivable balance.

The accrued income balance in the company's annual accounts is income accrued which is not invoiced shortly following the consumption month, being ‘aged accrued income’. Such balances totalled £4.2m in the annual accounts for the year ended 31 December 2017 and £4.3m in the interim results as at 30 June 2018.

The group has reviewed the level of the aged accrued income for each customer account and compared it with the amounts that have been or can be subsequently invoiced. This has highlighted that a significant amount of the aged accrued income is not recoverable and requires adjustment, thereby reducing profitability in the current year.

The board has also reviewed the level of trade debtors held and concluded that the level of non-payment being experienced is significantly above that which has been previously provided for. The requirement for an increase in the bad debt provision held is in addition to any provision required due to the first adoption of IFRS 9 (as disclosed in the company's interim results to 30 June 2018).

In addition, the company has re-evaluated business performance as a consequence of the accrued income adjustment noted above and taken into account market conditions which continue to compress the gross margins available to energy suppliers. As a result, it is now forecasting a significant reduction to gross margin in 2018 and beyond.

In its statement, Yü said: ‘The board are extremely disappointed to announce this substantial reduction in profitability. The board have committed to commissioning a forensic review of its systems to fully identify the underlying issues and implement all necessary further measures.

‘The board are confident that the group will achieve profitability for the year ending 31 December 2019, albeit at a lower margin than previous expectations, and is in the process of preparing detailed budgets.’

The company pointed out the group has significant cash reserves (£11.5m at 30 September 2018) and has no debt outstanding. It reported revenues of £47m and pre-tax profits of £2.2m last year and has about 150 staff. Its shares fell 80% on news of the accounting difficulties.

Bobby Kalar, Yü Group CEO, said: ‘As founder and majority shareholder, nobody is more disappointed in this development than me.

‘Our booked revenue from new sales remains strong and contracted revenue for 2019 is already £67m as at the end of September 2018. We have improved internal controls around working capital management and the board is absolutely focused on restoring the profitability of the business.’

Report by Pat Sweet