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RSM axes top executives after accounting error

Mid-tier accountancy firm RSM has overhauled its executive team after misstating its accounts by nearly £10m over two years.

8th Jan 2020
Editor AccountingWEB
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RSM's Chief executive David Gwilliam, chief finance officer Nigel Tristem and chief operating officer Robert Ross have lost their executive roles in the aftermath of an accounting blunder, the likes of which have not been associated with the RSM name since the dying days of Tenon.

This week, a footnote in the firm's accounts which admitted an error in its provisions for professional liability claims in 2018 spelled the end for the executives, despite the trio overseeing a 6.7% increase in revenues to £335m.

The error resulted in RSM earmarking £3.8m too much for the 2017 claims and £6m too little for 2018, denting the firm's net profit to the tune of £2.2m.

The executives were shown the door in December 2019, with their replacements already lined up in an acting capacity.

The firm’s managing partner Jez Filley has taken on the acting chief executive position, while Andrew Westbrook has become acting CFO and Jill Jones the acting COO.

The axed execs remain at the firm as partners, but this should do little to soften the blow for former chief exec Gwilliam, who was in the role less than two years and former CFO Tristem, who has been with the firm for almost 40 years.

An RSM spokesperson confirmed that the board made these management changes “by way of response to these issues”.

RSM in 'strong financial health'

The spokesperson continued: “RSM remains in very strong financial health, well placed to capitalise on all the opportunities available to it in the market, and to grow on its success of recent years.”

Indeed, RSM UK Holdings reported a pre-tax profit of £9.1m, compared to a loss of £113,000 the previous year, with revenues up £21m on last year’s £314m.

But the accounting error tarnishes what has been a notable year for RSM, which culminated in the firm winning its first FTSE 350 index audit client in the retailer Sports Direct.

Of course, when RSM and accounting errors are said in the same breath, memories naturally harken back to 2013 and the collapse of RSM Tenon. The crisis-hit Tenon discovered errors in 2012 which auditor PwC failed to uncover, which subsequently led to the firm’s profits crashing from £7.3m to £683,000 and then entering administration.

'Toothless regulators'

For accounting academic and critic of the audit sector Prem Sikka though, the fact RSM took a year to discover a significant error does the accountancy profession no favours. “Imagine relying on accounting firms to audit accounts of companies,” he said.

For Sikka, the problems lie with the “toothless regulators”.

“Even if they prepare lousy accounts and a lousy audit they continue in business because the regulators are pretty toothless and the state has guaranteed a market of external audit to accountants belonging to comparatively few trade associations so that means they remain in business,” he said.  

“People increasingly become sceptical and it is a drip-drip effect and this is another drip which says that this industry is not what it claims to be. There is a lack of integrity, technical know-how, ethics, responsibility, liability and eventually, these drips leave their marks on stones and they will one day have a cumulative effect on the whole future of this industry.”  

Replies (6)

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By Vaughan Blake1
08th Jan 2020 10:35

Not insured, or is this just the excesses on each claim?

Interesting to know the actual details here. Did other partners suppress/exaggerate provisions on their cases?

Also interesting to see the auditor's notes on these provisions.

Provisions are just that and can only reflect the details available at the time the accounts are finalised. I wonder if hindsight is a factor here?

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Replying to Vaughan Blake1:
By Nick Graves
08th Jan 2020 11:39

My thoughts entirely!

How long is a piece of string; too short one year and too long the next.

It does sound a bit like being sacked because one's crystal ball wasn't clear enough in the final outcome. "Sorry, but your best judgment simply isn't good enough - you're out."

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By SteveHa
08th Jan 2020 11:58

I remember the collapse of RSM Tenon only too well. I was employed by them at the time. This led to a TUPE move to Baker Tilly before redundancy as they simply migrated the work to their own established workforce.

I would never work for one of the big ones again, as a result.

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By stephen_walton
08th Jan 2020 15:19

What confidence do you have in an accountant that can not do their own accounts correctly and this is the second time!!!

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Replying to stephen_walton:
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By Vaughan Blake1
08th Jan 2020 17:08

It would interesting to see the detail as to why the provisions were wide of the mark. The claims may have been under/over provided for due to circumstances not known when the accounts were finalised.

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Hallerud at Easter
By DJKL
13th Jan 2020 10:01

Prem Sikka

“People increasingly become sceptical and it is a drip-drip effect and this is another drip which says that this industry is not what it claims to be. There is a lack of integrity, technical know-how, ethics, responsibility, liability and eventually, these drips leave their marks on stones and they will one day have a cumulative effect on the whole future of this industry.”

And the solution is what exactly? Throwing stones is all well and good, solutions would be useful- perhaps Professor Prem Sika could dig within his practical auditing experience (if he has much) and explain why exactly things went wrong in this particular case- or maybe hurling stones is better fun.

(DJKL-Ex part of what is now RSM (The Hodgson Impey bit that joined into Baker Tilly)

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