UK audit regulator opens inquiries into Manchester City accounts

The UK's audit regulator has confirmed it is leading inquiries into accounting irregularities at Manchester City. The Financial Reporting Council took over regulatory consideration of the case in late September, widening the scrutiny of the club's finances after an independent Premier League commission found against the club.

• The FRC assumed control of the case on 30 September, replacing the Institute of Chartered Accountants in England and Wales.
• No formal investigation has been opened yet, but the regulator is making inquiries.
• An independent commission found that City inflated their financial position by more than £900m.
• The regulator can examine the conduct of BDO, the club's auditors, and sanction individual directors or employees.
• Manchester City have appealed the commission's ruling, arguing it contains material errors of law, principle and fact.

Regulator takes charge of a high-stakes accounting case

The Financial Reporting Council told the House of Commons business select committee in a letter that it had taken over the regulatory handling of the case on 30 September. The file had previously sat with the Institute of Chartered Accountants in England and Wales.

The transfer marks a significant shift in the oversight of the club's finances. The FRC has greater resources and stronger sanctioning powers than the professional institute. Although it routinely oversees accounting standards at large institutions and listed public companies, its involvement in a football club represents a notable change in how accounting rules are applied in British sport.

More than £900m under scrutiny in English football

The starting point is the independent commission's ruling covering the 2009-10 to 2017-18 seasons. That body found that Manchester City artificially inflated their financial position by more than £900m as part of a series of breaches of the Premier League's financial regulations.

The commission also described how the club gave a misleading impression of the scheme used to disguise the origin of shareholder funds injected into the club. According to that account, the auditors were unaware of how the mechanism really worked.

The club gave a misleading impression of the scheme used to disguise the origin of shareholder funds; the auditors were unaware of the arrangement.

BDO's role and the individual sanctions the FRC could impose

BDO is the UK's fifth-largest accounting firm and describes itself as a market leader in football, advising more Premier League and Championship clubs than any other firm. Its work for Manchester City is now within the regulator's scope.

The Financial Reporting Council has room to assess whether BDO's audit complied with the rules. It can also apply individual sanctions to directors or employees of the Manchester club, provided they are members of professional accountancy bodies.

Manchester City's appeal and the political response

Manchester City have said they will appeal the independent commission's decision. The club argues that the ruling contains material errors of law, principle and fact, and that it does not offer sufficient guarantees to stand.

The Financial Reporting Council's involvement has also prompted a reaction in Westminster. Liam Byrne, chair of the business select committee, called for stronger powers for the regulator and questioned the current limits on its ability to compel evidence from the club or pursue directors who fall outside its disciplinary rules.

Byrne made his concerns public on social media. He believes the regulator's letter exposes gaps in its powers to force the club to provide evidence and to act against individuals not subject to its rules. The MP is pressing the government to explain why reforms designed to close those gaps were abandoned and what steps will now be taken to strengthen accountability.

Frequently asked questions about the Manchester City accounting case