Spotlight falls on Revolut after regulators flag up flaws in audit

Revolut is under pressure to improve its internal accounting controls after regulators flagged up major flaws in the auditing of its financial results.

The London-based payments group, which was founded in 2015 and has rapidly expanded to become one of Europe’s most valuable tech companies, has been revealed as the unnamed financial services provider whose audit by accountancy firm BDO was criticised as ‘inadequate’ by watchdog, the Financial Reporting Council (FRC).

In its annual report on the quality of BDO’s work published in July, the FRC said the audit of Revolut had suffered from an inadequate approach to revenue recognition, meaning the risk of a misstatement had been ‘unacceptably high’.

The watchdog also highlighted that BDO’s testing of Revolut’s payment processes had contained deficiencies which could have resulted in a misstatement. 

A source told the Financial Times that, as a result of its criticism by the FRC, BDO was now being ‘significantly more challenging’ towards Revolut, which could mean delays in the filing of some of its accounts.

Another source said that Revolut would need to improve ‘unsexy things like its back office and controls’ because it currently had ‘the culture of a tech firm’ but needed ‘a back office like a bank’.

Internal controls include systems and processes to ensure a company complies with the law and regulations while also ensuring its financial reports are reliable.

Revolut is the second-most valuable private financial technology firm in Europe and last year was valued at £29billion in a funding round led by Japanese conglomerate SoftBank.

The firm’s parent company, Revolut Group Holdings Ltd, must file its accounts for 2021 by the end of this month, while Revolut NewCo UK, an entity created to hold a banking licence the group applied for in January, has been overdue to file since June 10.

While companies are rarely punished for not filing their accounts on time, it can result in the prosecution of company directors and fines, meaning Revolut’s co-founder and boss, Russian-born Nikolay Storonsky, could find himself in hot water.

It could also mean trouble for Revolut’s chairman Martin Gilbert, the former head of investment manager Standard Life Aberdeen, now known as Abrdn, who joined in 2019 with an eye to helping steer the firm towards a stock market listing.

Pressure from auditors to beef up its processes is another headache for Revolut, which in recent months has seen an exodus of senior staff.

BDO, which was paid £650,000 to check Revolut’s 2020 accounts when it reported a loss of £168million, is under pressure alongside others in the industry as the regulator pushes for auditors not to sign off company accounts unless management provides the necessary information.

Revolut’s troubles also follow difficulties for another European tech darling, buy-now-pay-later group Klarna, which saw losses more than quadruple in the first six months of this year.