M&C Saatchi has taken a financial hit, accepting a "one-off exceptional charge of £6.4m in its upcoming annual results due to an accounting issue.
The company admitted on Wednesday that, following an internal accounting review of its UK business, it had counted outstanding fees as revenues and included assets no longer used on its balance sheet.
The charge comprises £4.9m of specific issues and £1.5m as a "conservative measure" to provide for any potential further issues arising.
On Tuesday (13 August) shares in the business tumbled by more than a fifth (22%) on the back of the news.
The PR and advertising specialists disclosed that a “misapplication of accounting policies” had led to the issue.
The errors only came to light following an in-house review where concerns were raised after KPMG and M&C Saatchi’s audit committee questioned the veracity of the company’s figures.
In a statement M&C Saatchi wrote: “We believe we have discovered the full extent of the issues, but, to be doubly sure, the board is appointing independent advisers to undertake a review of all the group’s accounts and accounting systems, as well as setting aside an extra £1.5 million as a conservative measure to provide for any potential further items arising.”
To prevent a repeat of the incident group finance director Mickey Kalifa has appointed a dedicated finance director to focus exclusively on the UK division where the problems arose.
An auditor will be appointed imminently to go through the books, with a full review of the incident expected to be completed by November.