AIM-listed IT managed services provider Redcentric has announced that an internal audit committee review has uncovered ‘misstated accounting balances’ in relation to the interim results for the six months ended 30 September 2016, and has asked the chief financial officer to leave
Redcentric said it has served notice on its CFO, Tim Coleman, and placed him on garden leave with immediate effect.
The board has now commenced a forensic review of the group's current and historic balance sheets which it says will delay publication of its interim results, originally scheduled for 14 November.
The work to date has identified that audited accounts for previous years are likely to need to be restated, resulting in some write down in historic profits. From the information available the impact of correcting these cumulative historic accounting misstatements is likely to result in a need to reduce net assets by at least £10m.
The net debt guidance announced in the pre-close trading update is now believed to be unreliable, and the board says it now believes net debt at the half year was approximately £30m. It also believes that the underlying net debt position at 31 March 2016 was materially higher than as reported and thus the business has reduced its underlying net debt in the six months to 30 September 2016.
The company says the accounting adjustments arising will result in a recalculation of the banking financial covenants, which will take some time to complete. Current indications are that all issues relate to prior periods.
Redcentric says it anticipates making an external interim appointment of a replacement CFO, as Coleman resigned immediately, and will provide a revised date for the publication of its interim results in due course.
Chris Cole, chairman of Redcentric, said: ‘The board is absolutely focused on completing the internal review to resolve the situation in a timely manner and release the company's interim financial statements at the earliest time.
‘Management's focus remains on working with our motivated staff to provide critical IT services to our customers. The indications are that these accounting issues relate to prior periods and that the current levels of new business sales by the company are as expected.’
PwC are Redcentric’s auditors and were paid a total of £180,000 last year according to the company’s 2016 annual report. This included £30,000 for the audit of the parent company, £96,000 for auditing its subsidiaries and £54,000 for tax and compliance services.
