Auditors express grave concerns about future of Birmingham City

AUDITORS have expressed grave concerns about the future of Birmingham City Football Club after latest accounts showed the club lost more than £12.4m.

BDO said that given the amount of information made available to it by the club’s directors the firm could not say with any confidence whether the club was a viable going concern; a claim denied by the board.

In his report in the club’s annual accounts statement, senior auditor Tom Lawton says: “A number of factors have made us sceptical as to whether we have received all relevant information and explanations necessary for the audit from the directors.”

He said that during the audit process an unnamed director had stated in writing that certain transactions were of concern.

“We have not been provided with sufficient and appropriate evidence that the board of directors have formally considered, and resolved as necessary, the issues relating to these comments or that these comments have been withdrawn by the individual director,” added Mr Lawton.

The report continues: “During the audit process we identified that significant payments that might have been related to the group were not disclosed to us in a timely fashion and we were only able to obtain important audit evidence in respect of these payments on the basis that we accepted it ‘redacted’ and that it was not available for discussion with the board as a whole.”

The undisclosed payments have now been agreed to be recorded in the accounts of the club’s parent company.

Mr Lawton, left, said that despite requests for a retraction of the comments made by the director nothing had been forthcoming. Neither had requests on other matters, he added, and as such the auditors were concerned about directors’ claims that the club was a viable going concern.

“As a result of these matters and in the absence of any alternative evidence available to us we have significant doubt as to whether we have received all relevant information necessary for the purposes of our audit.

“Our conclusion from our evaluation is that we do not have sufficient appropriate audit evidence to conclude whether the directors’ use of the going concern assumption is appropriate in the circumstances,” states the report.

The accounts show that for the year ended June 30, 2011 the club secured revenue of £61.45m. However, it still achieved a pre-tax loss of £12.43m, compared with a profit of £109,000 the year before.

Staffing costs, which included the players, came in at £45.09m.

The directors stated in their report that the club’s relegation to the Championship was likely to have a significant impact on the club’s finances.

They said demotion had “significantly reduced the income available in the 2011/2012 season and for subsequent years”. Nevertheless, they were confident of the club’s future.

They state in the report: “The directors’ note the auditors view as to whether the use of the going concern assumption is appropriate. At the direction of BDO the directors have performed an impairment review which shows that the club can remain in credit if it adopted the contingencies as adopted in that study.

“The board is of the view that, since the contingencies can support the impairment review exercise, it must be deemed to be viable and, based on which the conclusion on going concern assumption is appropriate.

“On this basis the directors continue to believe that it is appropriate to prepare the accounts of BCFC on a going concern basis.”

The report continues: “This has meant that the directors have had to take actions, including effecting a number of player transfers, to reduce the ongoing cost of the club to help ensure that the club is able to tailor its expenditure to the changed circumstances.

“However, the reduction in expenditure is not able to be effected as quickly as the impact of the reduction in income but due to a number of player sales and the support of the Premier League parachute payments this current year is expected to show a substantial profit and positive cash inflow.”

Their assumption centres on a profit and cash flow forecast based on income expected to be generated during the 2012/2013 season including “the residual premiership parachute payments to be received, expectations of player, management team and administration costs, expectations of player transfer and loan activities (which will need to be actively managed in the current financial  circumstances) and the assumption that the amounts payable to Carson Yeung and the parent company will not be substantially repaid.” 

“These forecasts show that the group requires additional funding to be made available to continue its operations for at least the next 12 months from the date of the approval of these financial statements (May 25, 2012 ) and through to June 30, 2013,” adds the report.

“The directors consider that the cash flow forecasts can be achieved and that the additional funding required can be obtained by forward funding of player transfers and/or additional player transfers.”

The report notes the forecasts assume that no further significant payments are made to Mr Yeung and the parent company.

Mr Yeung is currently in Hong Kong where he is facing money laundering charges.

The directors state in their report they are confident that club payments have not been “sourced from money laundered funds”.