UK Audit Regulator Investigates Manchester City Accounting Practices

The United Kingdom's audit regulator has confirmed it is leading inquiries into potential accounting irregularities at Manchester City. The Financial Reporting Council (FRC) informed the House of Commons business select committee that it took over the case from the Institute of Chartered Accountants in England and Wales on September 30.

While no formal investigation has commenced, the FRC is actively making inquiries into the matter. This development follows a finding by an independent commission that Manchester City committed numerous breaches of Premier League financial regulations between the 2009-10 and 2017-18 seasons. The commission alleged that the club artificially inflated its financial position by over £900 million, a verdict Manchester City is currently appealing.

The FRC possesses greater resources and powers to impose sanctions if violations are identified. The regulator typically oversees accounting standards for larger institutions like publicly listed companies, though football clubs are not usually within its direct purview. The FRC can examine the conduct of BDO, Manchester City's auditors, to determine if their audits adhered to established rules. Additionally, the FRC may impose sanctions on individuals, such as directors or employees of the club, provided they are members of professional accountancy bodies.

BDO, the fifth-largest accounting firm in the UK, markets itself as a leader in the football industry, advising more Premier League and Championship clubs than any other firm. The independent commission that investigated Manchester City concluded that the club presented a "misleading impression" of the scheme used to disguise the origin of shareholder funds injected into the club. The commission also found that the club's auditors were "unaware" of this scheme.

Manchester City has stated its intention to appeal the commission's decision, citing "material errors, of law, principle and fact and is unsafe." Liam Byrne, chair of the business select committee, has called for enhanced powers for the FRC to investigate similar cases, highlighting potential gaps in the regulator's ability to compel evidence and pursue directors outside its disciplinary scope. He stressed the government's responsibility to address these accountability concerns.

BDO has declined to comment on the matter.