This latest investigation under the regulator’s accountancy scheme is in addition to the FRC’s ongoing investigation, announced in July, in relation to the conduct of Deloitte’s audit of Mitie under the audit enforcement procedure (AEP). This investigation is looking at whether there have been any breaches of relevant requirements in relation to the statutory audits of the consolidated financial statements of Mitie Group for the years ended 31 March 2015 and 2016.

The FRC has said it will report ‘in due course’ on the outcomes of the two investigations.

Separately, the regulator has published details of the conclusion of its corporate reporting review team’s review of the annual report and accounts of Mitie for the year ended 31 March 2016, which was initiated on 13 October 2016.

The FRC raised a number of issues with the company following its review of the 2016 annual report and accounts. These included issues relating to the impairment testing of the goodwill allocated to the healthcare cash generating unit, plus other areas that were subsequently covered by an accountancy review the company’s new executive management team announced at the beginning of this year. 

Mitie’s 2017 annual report and accounts discloses that its audit committee appointed KPMG to review the circumstances surrounding the judgment made on healthcare goodwill at 31 March 2016 following new evidence coming to light during the course of preparing the company’s response to the FRC’s enquiries, which had not previously been provided to the external auditor, the audit committee or the board.

The audit committee concluded that one or more errors were made in the preparation of the plan that formed the basis for the impairment testing of healthcare goodwill at 31 March 2016. This resulted in the recording of a prior year adjustment to goodwill at 31 March 2016 of £26m.

In addition the audit committee also concluded that a number of other judgments were made in respect of the impairment testing of healthcare goodwill at 31 March 2016, which were impacted by the discovery of further information and were considered as part of the preparation of the 2017 annual report and accounts. Had these matters been regarded as prior year errors, rather than changes in judgment, the amount of the prior year adjustment would have increased by £44m.

As a result of the company’s accounting review, the adjustments reflected in its 2017 annual report and accounts and further explanation provided by the company, the FRC considers that its concerns have been satisfactorily addressed.

Mitie Group has also announced Paul Woolf, former CEO of Virgin Active Health Clubs, is to be its new group CFO. Sandip Mahajan, who has held the role since February 2017, will step down from the board and take up a new role as the group's chief financial transformation officer. 

Phil Bentley, CEO of Mitie said: ‘Sandip has been invaluable to Mitie's turnaround story since he joined the organisation earlier this year, and I am delighted he will be staying with the organisation to complete the upgrade of our group-wide finance function from a systems, governance and people perspective.

‘I would like to personally thank him for the significant impact he has had in the upgrading and professionalisation of our finance capabilities to date.

‘I am delighted Paul Woolf will be joining Mitie. He is a highly-regarded leader with industry expertise and a proven track record in operational, financial and strategic oversight and execution.’

Report by Pat Sweet