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Phoenix IT loses £63m due to accounting errors

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3rd Dec 2012
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Phoenix IT recorded a £63m loss after accounting irregularities were discovered by the company. 

The computer services company published its interim results on the London Stock Exchange news feed on Friday, reporting a pre tax loss of £63.3m and a series of revised profit figures for previous years.

Phoenix recorded a one-off impairment charge of £68.1m against goodwill and intangible assets at its acquired subsidiary Servo, where the irregularities were found. 

After the discovery of an accounting “black hole” last month, the firm enlisted PwC to take over from Deloitte as auditor and CEO David Courtley left the company after just 15 months in the job.

Phoenix also hired law firm Nabarro alongside PwC to look into the accounting and control processes. Servo's finance activities, meanwhile, will be relocated to to a shared services centre at the company’s Northampton headquarters.

The investigation resulted in a string of restatements for excessive profits that were reported from 2009 right through to the latest reporting period that ended on 30 September 2012. The cumulative profits overstated after taxation were £17.3m (£23.4m before taxation), Phoenix reported.

Accounting errors were only partially to blame for the dismal results, the company said. Courtley’s business restructuring programme apparently played a part too.

In its statement to the London Stock Exchange, the company said PwC had ended its investigation into the accounting errors and had found no evidence of cash theft. 

The accountants did find, however, that the profits of Servo had been "manipulated and overstated" since 31 March 2009. 

Phoenix executive chairman Peter Bertram said the company's first half results were disappointing, with revenue down 5% on last year. 

"The business suffered from transitional issues caused by the new structure and the discovery of the accounting irregularities," he said. 

Bertram was more optimistic looking forward to years ahead. 

"As a result we are cautious in the short term, however, with the new contract along with our strengthening pipeline of opportunities in the second half of the year, we believe we are well positioned for the medium to long term," he added. 

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