M&C Saatchi announced it will need to make adjustments of £11.6 million to its financial results, following an independent review conducted by PwC.
This comes after the group initiated an internal accounting review of UK subsidiaries in August, which flagged up issues in its financial results.
PwC’s forensic services replaced KPMG to perform an independent review of the issues identified by the internal review, as announced in its interim results published in September.
Following PwC’s review, the group has now revised upwards the total value of the previously disclosed adjustments by £1.15m, compared to the levels outlined in its interim results.
Other areas which were “more judgemental in nature” and went beyond the items announced in August were also identified by PwC during its review.
Following these findings, M&C Saatchi said that “further adjustments related to these areas should be made”, and these additional items brought the total proposed adjustment to £11.6m.
Of the total proposed adjustments, £9.55m relates to 2018 and will therefore be treated as a prior period adjustment. The £2.05m adjustment relating to 2019 will be treated as an exceptional item.
Both separately and in relation to 2018, PwC also identified that the 2018 half-year reported profit was adjusted by £6.4m, and that “such adjustments may have occurred in half year reports since 2014″.
While the proposed adjustments are unaudited, M&C Saatchi has discussed them with PwC auditors.
David Kershaw, CEO of M&C Saatchi, said: “This restatement of our numbers and the reduction in forecasts make for very difficult reading both for us as a management team and for all of our stakeholders.
“The only positives that we can offer are that a robust review has been undertaken and we have, under our new Group Finance Director, started implementing processes and procedures to prevent such issues arising again.”
He added: “The trading performance in the second half of this year is disappointing. However our operating businesses remain strong, creative and competitive and we expect that, when combined with the impact of our restructuring coming through, we will have a stronger trading performance in 2020.”
The group said it will be “taking action to prevent the incidents that resulted in the above accounting misstatements from reoccurring”.
Such measures include reorganising the group finance function, creating new standardised company accounting policies and procedures, introducing tighter control on cash management and implementing a cloud-based accounting and forecasting system.
In its statement, the group also revealed that underlying profit before tax was expected to be “significantly below the levels expected at the time of the Company’s interim results”. It said that this was a result of weakened trading and higher central costs.