Wood Group accounts flagged by watchdog way back to 2017 | USAEMALL.com

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Red flags were raised over Wood Group’s financial statements as far back as 2017, according to corporate and regulatory records that indicate persistent questions over its accounting practices.

The London-listed company — which the UK’s financial markets regulator is now investigating as £242mn takeover talks languish — had to restate an income statement after being questioned over its 2022 annual report by the country’s accounting watchdog. It was the second time the Financial Reporting Council had found problems with Wood’s accounts.

The energy engineering company’s directors also criticised three separate internal audit reports covering certain business divisions in 2022 and 2023. 

One was an “unsatisfactory” audit into Wood’s projects division, its second-biggest by revenue. The unit is at the centre of a crisis after an independent review by Deloitte — prompted by conversations with Wood’s auditor KPMG — found “material weaknesses and failures” in its financial culture, including information being withheld from auditors. 

It marks the latest sign of trouble at Wood, which has had to suspend its shares while it restates accounts for 2023 and 2022 and prepares those for 2024, complicating a potential takeover by the United Arab Emirates-based Sidara.

Sidara declined to comment. It was still intent on seeing the deal “over the line”, according to one person close to the company.

“These issues complicate life for everyone involved, but the push continues,” the person said.

Wood has extended the deadline for Sidara to complete its offer several times, with the current target set for the end of July.

Before its slump, Wood had been a homegrown success story of the UK’s development of its North Sea resources. It had a market capitalisation of more than £5bn as recently as 2018 but has been struggling since a £2.2bn takeover of Amec Foster Wheeler in 2017 left it with high debts and legal liabilities. Its market cap fell to about £126mn before its shares were suspended on May 1.

The company announced on June 27 that it was being investigated by the Financial Conduct Authority, the UK’s financial regulator, following the Deloitte review. The FCA, which can impose swingeing fines, can investigate listed companies beyond the financial sector for the accuracy and timeliness of statements made to the market.

Separately, Wood’s finance chief Arvind Balan, who joined the company in April last year, resigned in February after admitting misstating his accounting qualifications.

The FRC can review a company’s reporting to the market if it feels that the published information does not comply with legislation. If it finds a problem, the regulator can then write to the group’s chair. 

In the case of Wood, the FRC reviewed its reporting three times, two of which led to such a “substantive” exchange of letters regarding Wood’s 2017 and 2022 accounts, according to the regulator’s website. 

Wood came under particular scrutiny from the FRC for not including $54.5mn of currency-related changes in its 2022 “statement of comprehensive income” despite the figure being included in a separate statement that tracks movements in shareholders’ equity.

Wood acknowledged the error and agreed to restate the statement of comprehensive income, the FRC’s summary said. It also promised to enhance its disclosures around so-called liquidated damages, in response to a separate FRC criticism the same year.

In its 2022 annual report, Wood said the change was “deemed not to be material by the directors”. No FRC summary is available for the exchange over the 2017 accounts.

The company’s own annual reports also reveal questions raised by its directors. 

The 2023 report details that the audit, risk and ethics committee held a review over an “unsatisfactory group audit and risk report”.

The 2022 annual report mentions the same committee held a “review with senior business leadership of an unsatisfactory audit report in the projects business unit and actions taken”, along with a similar issue in the consulting business unit.

Wood, the FRC and the FCA declined to comment.