The UK’s audit watchdog, the Financial Reporting Council (FRC), has taken control of the regulatory review into Manchester City’s accounting practices, a move that significantly escalates the scrutiny surrounding the club. The FRC assumed responsibility for the case from the Institute of Chartered Accountants in England and Wales on September 30, according to a letter sent to the House of Commons business select committee. While the regulator has not launched a formal investigation, it is currently conducting inquiries into the matter, as reported by the BBC.
Regulatory Oversight Shifts to the FRC
The transition to the FRC marks a major shift in how the allegations against Manchester City are being handled. Unlike the Institute of Chartered Accountants, the FRC possesses broader powers and greater resources to impose sanctions if it identifies evidence of rule violations. While the regulator typically oversees audits for major public companies, it does not usually monitor football clubs. By stepping in, the FRC can now examine whether the work performed by BDO—the club’s auditor—complied with professional standards.
Independent Commission Findings on Financial Discrepancies
This regulatory interest follows an independent commission’s ruling that found Manchester City guilty of breaching Premier League financial regulations between the 2009-10 and 2017-18 seasons. The commission determined that the club artificially inflated its financial position by more than £900 million. Furthermore, the commission noted that the club provided a "misleading impression" of the mechanisms used to disguise the origins of shareholder funds, leaving auditors unaware of the underlying schemes. Manchester City is currently appealing this verdict, characterizing the commission’s findings as containing "material errors, of law, principle and fact" and declaring the decision "unsafe."
Limitations in Current Regulatory Powers
The involvement of the FRC has prompted a debate in Parliament regarding the scope of the regulator’s reach. Liam Byrne, chair of the business select committee, stated on X that the regulator’s correspondence reveals significant gaps in its authority. According to Byrne, the FRC lacks the power to compel evidence directly from the club or to pursue directors who fall outside its specific disciplinary rules. He argued that the government must address why previous reform efforts to close these gaps were abandoned, noting that the current situation raises questions about how companies and their leadership can be effectively held to account.
Perspectives on Audit Accountability
BDO, the UK’s fifth-largest accounting firm, has declined to comment on the inquiries. Despite the scrutiny, the firm remains a prominent player in the sports sector, claiming to advise more Premier League and Championship clubs than any of its competitors. The FRC’s current inquiry allows it to apply sanctions to individual directors or employees associated with the club, provided those individuals are members of professional accountancy bodies.
Questions Regarding the Manchester City Inquiry
Does the FRC’s involvement mean a formal investigation is underway?
No. While the FRC has taken over "regulatory consideration" of the case, it has not yet initiated a formal investigation. The regulator is currently conducting inquiries to determine if further action is required.
What specific powers does the FRC have that other bodies lack?
The FRC has greater resources and the authority to apply sanctions to individuals—such as directors or employees—who are members of professional accountancy bodies. It can also scrutinize whether audit firms, such as BDO, followed proper rules when reviewing a club’s financial statements.
Why is the club disputing the findings of the independent commission?
Manchester City maintains that the independent commission’s verdict is flawed. The club has stated it will appeal the decision, arguing that it contains material errors regarding law, principle, and fact, and that the ruling itself is unsafe.
The Premier League’s financial regulations require clubs to disclose accurate revenue streams, a standard that was at the heart of the 2009-2018 breach findings.
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