M&C Saatchi will take a £6.4m hit to its financial performance following an internal accounting review of several of the company’s UK subsidiaries that found "instances of misapplication of accounting policies".
The exceptional one-off charge comprises £4.9m of specific issues identified by the review and £1.5m "as a conservative measure to provide for any potential further issues arising".
The M&C Saatchi board set up the internal review following an independent auditor's report that raised concerns about the accounting controls across the group, reinforcing similar concerns raised by its audit committee. That was in late May 2019, and was published in the annual report on 29 May.
An unscheduled trading update released today revealed that the internal review confirmed KPMG's concerns and found instances of misapplication of accounting policies in the division. Most related to the timing of revenue recognition and incorrect accounting of some assets and liabilities.
To help prevent this recurring, group finance director Mickey Kalifa has appointed a new finance director for the UK division, together with additional senior finance staff. He is also about to appoint the company's first group treasurer.
As part of the company’s ongoing assessment of its assets, it has also decided to make an adjustment of £1.4m in respect of its property-related assets as it is part-way through an office refurbishment.
The board is now appointing independent advisers to undertake a review of all the group’s accounts and accounting systems, which is expected to be completed by November.
In a statement the agency group said: "We are determined that our strategy of winning new business by starting new businesses will not be undermined by this, but recognise that having so many young companies in the group requires extra vigilance."
At an operating level, the company said it continued to perform well across the network. The 2019 interim results will show an expected year-on-year decline in profit before tax due to the "unusually strong" first half in the prior year.
However, it said the prospects for trading in the second half were "looking strong". As a result, before the exceptional charge, the board "is confident" it will meet expectations of operating profit for the year.
The agency’s interim results are due on 24 September.
This article first appeared on PRWeek sister title Campaign