Deloitte under investigation by UK accounting regulator over Go-Ahead audits

Deloitte is under investigation by the UK accounting regulator over its audits of bus and rail operator Go-Ahead Group.

The Financial Reporting Council said on Tuesday that it was probing the Big Four auditor’s checks on Go-Ahead’s accounts for the six financial years ended between June 2016 and July 2021. It is the longest period ever to be covered by a single FRC audit investigation.

The regulator did not disclose the focus of its investigation, which it said was launched on March 22.

The investigation into Deloitte’s work adds to probes into its audits of car dealership Lookers, construction materials supplier SIG and outsourcer Mitie Group.

It is the latest development in a crisis that has unfolded at Go-Ahead in recent months. The company runs Govia Thameslink Railway, one of the UK’s busiest commuter lines in South East England, as well as UK bus services and a portfolio of international services.

It was plunged into crisis last year when the UK government stripped it of the Southeastern rail franchise after finding it had failed to declare tens of millions of pounds of taxpayer funding that should have been returned. Go-Ahead referred itself to the Serious Fraud Office, which did not confirm whether it would investigate. The Department for Transport fined the company £23.5mn last month over its failings.

The FRC did not comment on whether it would also investigate EY, which signed Go-Ahead’s accounts until 2015. Southeastern’s failure to declare money that should have been returned to the taxpayer stretched back to October 2014.

Go-Ahead’s chief financial officer resigned and its shares were suspended from trading on the London Stock Exchange in January because it had been unable to publish its financial results within the time allowed under market rules. They were reinstated after results were eventually published on February 24, having originally been due on September 30 2021.

The group reported a pre-tax loss of £6.9mn on revenues of almost £4.1bn but also restated several aspects of its previous accounts after identifying a string of errors and problems, including in relation to the Southeastern rail franchise and the treatment of contracts in its German rail business.

The changes resulted in a £39.3mn increase in its pre-tax losses for the 2020 financial year while its net assets were £77.2mn lower than originally stated.

In its audit report for the year to July 2021, Deloitte said it had reassessed its approach to the audit because of the government’s investigation into the rail franchise and a “significant number of errors and control weaknesses” that had been identified. It said it had called in legal, forensic accounting and rail industry experts to help with its work.

Deloitte was paid £2.9mn for its work in the 2021 financial year, up from £1.3mn a year earlier. Go-Ahead said the 2021 figure included a fee overrun of £1.2mn because of additional audit procedures required after the concerns about the Southeastern franchise were uncovered.

Addressing the problems, Go-Ahead’s chief executive Christian Schreyer said last week: “We have changed . . . we have understood and we have acted.”

Deloitte said it would co-operate fully with the FRC’s investigation and was “committed to the highest standards of audit quality”.

The firm was fined a record £15mn in 2020 for serious misconduct in its audits of Autonomy, the former FTSE 100 software company that was sold to Hewlett-Packard in 2011.