WPP hit by accounting FIASCO

Red faces as ad giant gets its numbers wrong . . . by £300m

ADVERTISING agency WPP has admitted to understating its losses by hundreds of millions of pounds after an embarrassing accounting debacle.

In a highly unusual error, it said its statutory losses were mis-stated by £301m for the first six months of this year.

It means the record half-year loss of £2.6bn that the world’s largest advertising agency reported in August has been corrected to an even bigger loss of £2.9bn.

WPP, which owns Grey, Ogilvy and Wunderman Thompson and is headed by chief executive Mark Read ( pictured), said its finance team spotted the error after the results were issued.

It now plans to restate accounts for 2017 to 2020 to correct them.

The fiasco relates to WPP’s hedging of foreign currencies, something large multinationals do to cushion themselves against wild swings in exchange rates. WPP said it had for years incorrectly reported dollar and euro liabilities because its bean- counters had applied certain International Accounting Standards rules ‘inappropriately’.

A spokesman stressed the changes were ‘non-cash and nothing to do with trading performance’.

But a City source familiar with accounting norms said the disclosure was ‘ embarrassing’ and called the £301m ‘a big number’.

WPP disclosed the news to UK investors in a statement to the London Stock Exchange yesterday, which made no mention of the change to statutory profits.

Instead, it said there would be no change to ‘headline profit’ – an adjusted figure that is preferred by management as a measure of performance. In addition to the foreign currency hedging, it said it had also been wrongly applying accounting rules related to ‘cash pooling’, where big firms balance their various bank accounts, but would fix this in 2021.

‘The adjustments arising will have no impact on any of WPP’s headline measures, operating profit, net debt, net assets, net current liabilities or statement of cash flows,’ the firm said.

In the US, the company issued a far more detailed statement to regulator the Securities and Exchange Commission (SEC), admitting the blunder would ‘affect profit/loss for the year from continuing operations and reported earnings per share’.

It said this would result in an extra £301.1m being added to its statutory loss for the six months to June 30, 2020, and an £8.9m gain in the six months to June 30 last year.

For the full years of 2019, 2018 and 2017, WPP said there was an extra gain of £ 245.7m, a loss of £205.1m and a gain of £194.6m respectively.

WPP said it discovered the book-keeping error after issuing its half-year results in August. It then worked with Deloitte, its auditor since 2002, to correct the financial reports. The error originates from an interpretation of accounting rules taken by WPP’s finance team a decade ago, when its founder, Sir Martin Sorrell, was still boss. However one person close to the firm said the tycoon was unlikely to have been aware of it. Paul Richardson, a long-serving executive who left in May, was finance chief at the time.

Last night Lord Sikka, a Labour peer and professor of accounting at Sheffield University, said the disclosure raised questions about why no one at WPP or Deloitte had spotted the mistake sooner. Deloitte signed off accounts in 2017, 2018 and 2019. ‘

What on earth were the auditors doing and where are the regulators? The fact this detail only came out in the SEC filing really shows the difference between the effectiveness of the UK and US regulatory regimes.

‘When you look at the SEC from this side of the Atlantic, it appears to be a far more effective authority when it comes to intervention and enforcement.’ Deloitte declined to comment. Despite the announcement, WPP’s shares edged up 0.3pc, or 2p to 785.8p. Its record half-year loss in August was largely because it had written £3bn off the value of its various ad agencies.

Its accounts previously sparked controversy in 2001, when it recorded a £411m profit but analysis by an accountancy firm said more conservative book-keeping would have cut that to £96.9m

The accounts had been audited by Arthur Andersen, the firm involved in the Enron scandal.