Lycamobile, the biggest corporate cash donor to the Conservative Party, failed to provide sufficient information to auditors KPMG for its financial statements of Lycamobile UK Limited for the financial year ended 28 February 2015.
In its auditor’s report on the accounts filed at Companies House, KPMG highlighted a £134m hole in Lycamobile’s accounts, owed to the company by related parties.
KPMG said, “The audit evidence available to us was limited because of the complex nature of the related party structure the company operates within.
“Owing to the nature of the company’s records, we were unable to obtain sufficient appropriate audit evidence regarding the measurement and disclosure of these related party balances by using other audit procedures,” the Big Four firm added.
The auditors also highlighted confusion regarding adjustments made to turnover and deferred income in the financial statements.
There was an adjustment of almost £2.5m made to the accounts to increase turnover in the financial year ended 28 February 2015.
According to KPMG, the directors of Lycamobile were unable to determine the nature of the balance and as such the directors were unable to obtain evidence regarding its profit and loss account classification. The firm added that as auditors, they were “unable to obtain sufficient audit evidence as to its correct classification for the financial year ended 28 February 2015".
With regard to deferred income, the adjustments in the financial statements had built up over a number of financial years. As a result of the historical nature of the amounts, the company’s records have not been retained with sufficient detail, according to KPMG.
The auditors were unable to obtain sufficient audit evidence, regarding the level of deferred income and turnover relating to the financial years ended 28 February 2013 or prior. The firm added that any changes to the adjustments would have a consequential effect on the results.
The report, written by David Neale, senior statutory auditor, on behalf of KPMG, concluded that the auditors “have not obtained all the information and explanations that we consider necessary for the purposes of our audit and we were unable to determine whether adequate accounting record have been kept".
Richard Murphy, director of Tax Research UK, said the fact that auditors cannot confirm £134m of total assets is a “massive issue”. He also highlighted that the accounts, which should have been filed by the end of November, have only just gone in.
“The delay is almost certainly due to the accounting issues that arose in the period,” he said.
With regard to the adjustments to the financial statements, Murphy said the company “had no idea where this money came from” and added that the telecoms firms has a “books and records problem” as well as an offshore problem.
“This is a company where the auditors are having real problems verifying the books and records. That’s rare and suggests significant risk, much of which in this case is related to the complex (and partly) offshore group structure Lycamobile uses,” he said.
The revelations come at a bad time for prime minister David Cameron, who is under increased pressure to crack down on tax havens after facing criticism for his late father’s links to the Panama papers.