UK Audit Regulator Takes Over Manchester City Accounts Review, No Formal Investigation Yet

Since an independent commission found Manchester City guilty of breaching Premier League financial rules in a ruling published in September, the fight has moved beyond the league's own tribunal. The UK's audit regulator is now involved.

The Financial Reporting Council confirmed in a letter to the House of Commons business committee that it took over "regulatory consideration" of the matter from the Institute of Chartered Accountants in England and Wales on Sept. 30. No formal investigation has started. The FRC said it is examining the commission's findings and making "preliminary enquiries" to establish whether there are grounds for one.

What the commission found

The commission covered nine seasons, 2009-10 to 2017-18. It found City set up "sham" commercial arrangements that inflated the club's financial position by more than £900m, and that the club made "concerted efforts" to "stop and frustrate" the Premier League's investigation.

The commission's findings, as detailed in its ruling, put City's sponsorship revenue from Abu Dhabi-based partners at £949.94m over the period. Only £119.25m was paid by the sponsors as genuine base fees. The other £830.69m came from Abu Dhabi United Group, the investment vehicle of majority owner Sheikh Mansour bin Zayed Al Nahyan.

The auditor angle is why the FRC matters. The commission found that City gave its auditors a "misleading impression" of the scheme used to disguise where shareholder money came from, and that the auditors were "unaware" of it.

What the FRC can and cannot do

The FRC normally oversees accounting at listed public companies, not football clubs. It has more resources and stronger sanctioning powers than the accountancy institute that previously held the file.

It can examine whether BDO, City's auditor, conducted the audit in line with the rules. It can also sanction individuals, including club directors or employees, if they are members of professional accountancy bodies. BDO, which describes itself as a market leader in football advice and is the UK's fifth-biggest accounting firm, declined to comment.

The regulator's letter also pointed to limits. Liam Byrne, the Labour MP who chairs the business committee, said it "exposes gaps in its ability to compel evidence from the club and pursue directors who fall outside its disciplinary rules."

In an earlier letter to the FRC chair, Byrne asked: "how could the established system of audit and regulatory scrutiny fail to uncover alleged misstatements of such a scale over nine years?" He added that the issues "came to light through media reporting rather than the established audit and accounting process."

Byrne is now demanding answers from ministers. "The government has a responsibility to explain why reforms to close these gaps were abandoned," he wrote on X, "and what will now be done to strengthen accountability."

City's position

Manchester City denies wrongdoing and has lodged an appeal. The club says the commission's decision "contains clear material errors, of law, principle and fact, and is unsafe." The appeal is ongoing, and the verdict is not final. Any FRC findings would be separate from, and would not decide, the outcome of that appeal.

Accountancy enforcement, if it comes, would run alongside the Premier League case. No punishment or timetable has been announced on either track.

The football regulator's role

The new Independent Football Regulator is also watching. Its chair, David Kogan, said on the podcast The Rest Is Football that the IFR has "absolute power" to force an owner to sell a club it believes is not run in a way that is "fit, fair or done with propriety." Asked whether an owner could refuse to divest, he said: "No, no, no. We've got absolute power to do so."

Kogan declined to say whether the IFR will act on City. He called it premature while the appeal is pending and said pre-empting the outcome "would be a colossal mistake." He said the IFR will decide whether to mount its own investigation once questions are answered.

Kogan has also pledged to resign if there is political interference in any IFR investigation of City. Concern about that centers on a possible diplomatic issue between the UK and the United Arab Emirates, since City is majority-owned by Abu Dhabi United Group.

What comes next

Two decisions are open. The FRC has to decide whether its preliminary enquiries justify a formal investigation of BDO or individuals. The IFR has to decide whether to open its own case after the appeal runs its course. Neither body has given a date, and the appeal's timing has not been announced.