The Financial Reporting Council (FRC) is considering launching a formal probe into Manchester City’s accounts and its external auditor BDO, after the club was found to have breached the Premier League’s financial rules.

In a letter to the government’s business committee, penned by the newly appointed chair, Dame Jayne-Anne Gadhia, the FRC said it is conducting “preliminary enquiries” to determine if there are grounds for a formal investigation into the audits of Manchester City by BDO, as well as any relevant regulated person at the club.

Manchester City faces potentially major sanctions after being found guilty of all but one of the 115 charges of breaching financial regulations brought by the Premier League in the period 2009 to 2018. During that period, the club won three Premier League titles, two FA Cups, and the EFL Cup.

The Premier League football club is currently seeking to appeal the independent Disciplinary Commission’s findings, but the FRC said this does not prevent it from pursuing its own inquiries or further action. However, Gadhia said the accountancy regulator will keep the appeal in mind.

FRC chair pushes for reforms

In a letter to the committee chair, Liam Byrne MP, the FRC also emphasised the limits of its current powers, as Manchester City is not legally defined as a Public Interest Entity (PIE). As a result, the regulator cannot hold directors accountable if they are not members of professional accountancy bodies, nor can it compel non-PIE entities to provide information at any stage.

Gadhia took the opportunity to push for statutory reform, stressing in her letter that the FRC needs proper information-gathering powers and must end its reliance on voluntary levies to investigate effectively.

“As Richard Moriarty, the FRC’s Chief Executive Officer, discussed at your Committee’s hearing in 2024, this must include the FRC no longer being reliant on voluntary levies. Our ability to undertake investigatory and enforcement activity effectively, including delivering timely outcomes, also relies on us being given appropriate information-gathering powers,” she said.

“Both these changes are needed to bring the FRC into line with the powers that other regulators have,” she added.

Earlier this year, the government scrapped the long-anticipated Audit Reform and Corporate Governance Bill (ARCG), which would have reformed the FRC into a new body, citing goals to cut red tape and promote business growth.

In response to Gadhia’s letter on Tuesday, Byrne MP said: “The government has a responsibility to explain why reforms to close these gaps were abandoned – and what will now be done to strengthen accountability.”

The scrutiny of BDO follows the watchdog flagging the accountancy giant in July for an “unacceptable” standard of audit quality, for a fifth year in a row.

BDO declined to comment, saying it is bound by confidentiality duties.