Investigation into Renold’s Gears business unit shows ‘intentional misreporting’

In a statement to the London Stock Exchange, Renold has detailed the findings of the investigation into the historical accounting issues at its Gears business unit, which is part of the Torque Transmission division.

On 9 July 2019, the Group announced the postponement of the Annual General Meeting (AGM) to permit the preparation of revised audited financial statements for the year ended 31 March 2019, following the identification of these issues.

An independent internal audit investigation, supported by PwC, was undertaken and revised financial statements have been prepared and audited.

A review of the Gears business unit was initially undertaken following comments made by the Auditor to the Audit Committee regarding application of accounting controls in the business unit. The initial management investigation identified intentional misstatement of results at a local level, and as a result the Board immediately initiated an independent internal audit investigation, supported by PwC, reporting directly to the Audit Committee.

In July the company said the initial investigation had identified a total overstatement of the balance sheet at 31 March 2019 of £1.8m. The more extensive independent investigation largely corroborated the initial findings, in addition to identifying further errors which principally impact profit in the year to 31 March 2017. The cumulative effect of these misstatements resulted in net assets at 31 March 2019 being overstated by £2.5m in total, and adjusted operating profit in the year to 31 March 2019 being overstated by £1.0m. 

The independent investigation concluded that the misstatement was a result of intentional mis-reporting of financial information at a local level. The misstatement comprised many adjustments across a number of balance sheet categories. The impact on cash and net debt of £0.3m is unchanged from the announcement on 9 July 2019.

 Robert Purcell, Chief Executive of Renold, said: "These events are frustrating and deeply disappointing but the Board, in conjunction with the Audit Committee, have acted swiftly to fully investigate all matters. We are working closely with Deloitte, the Group's Auditor, to ensure that recommended improvements to the internal control environment are quickly and effectively implemented.

"With the investigation and audit of the revised accounts completed, we can refocus our efforts on operational improvement and generating value for shareholders."