Auditing of Revolut's accounts "inadequate", say UK regulators

Regulators have criticised the auditing of Revolut’s accounts as “inadequate” and said there is an “unacceptably high” risk of “material misstatement” in its accounts.

The criticism is contained in the Financial Reporting Council's annual audit quality inspection of accountancy firm BDO, Revolut’s auditor.

According to the Financial Times, the firm is the unnamed “financial services provider” whose audit was criticised by the FRC, in the report published in July this year.

The criticism comes ahead of the expected publication of Revolut’s group accounts in the coming weeks.

In its criticism, the FRC said: “The audit team's overall approach to revenue recognition was inadequate and, as a result, the risk of an undetected material misstatement was unacceptably high. 

“The audit team's substantive testing for the majority of the revenue streams was inadequate as it was limited to agreeing transactions between the entity's internal systems. In addition, given the highly automated nature of the entity's processes, it was not appropriate to rely on substantive audit procedures alone." 

It added that "deficincies were identified" in the audit testing of Revolut's payments process adding that the "undetected material misstatement remained unacceptably high".

The report, which also criticised other BDO audits, says the criticism refers to accounts with the year ends between June 2020 and March 2021.

Revolut's last group company accounts filed are for the year ending December 2020.

According to a source who spoke to the FT, the criticism comes amid auditors “being significantly more challenging now, because they’re getting beaten up by their regulators,”  adding that BDO’s more rigorous approach might lead to delays in filing accounts for key Revolut subsidiaries. 

Revolut must improve “unsexy things like its back office and controls” as it “needs to have a back office like a bank and it’s got the culture of a tech firm”, said another source spoke to by the FT.

The source added that the FRC had concluded that the fintech group “needs to have the control environment of a bank”, adding that Revolut was “definitely trying to do all the right things” and that management understood they needed to invest in processes and controls.

In July this year, it was revealed that Revolut had been struck by the exit of several key executives, including its UK regulatory and risk bosses, as the neobank looks to speed up progress on the decision by the financial regulators on its UK banking licence.

Revolut declined to comment.