Revolut Reportedly Hired Lawyers to Challenge Audit Report
British neo-bank and fintech company Revolut has reportedly hired lawyers to prove that an audit by BDO confirms the validity of its annual report. BDO has argued that the company’s revenues for 2021 “may be materially misstated” due to the incompleteness of revenues within some divisions.
Revolut Reports First Full-Year Profit
Earlier this month, Revolut released its annual report for 2021. The fintech company claimed that growth in active retail users and increased revenue across all major product lines resulted in strong financial metrics for the platform.
The company reported a net profit of £26 million ($32 million) in 2021 for the first time, compared with a £223 million ($275 million) loss the previous year. The company’s revenue almost tripled to £636 million ($769 million) for the year, compared to £220 million ($266 million) in 2020.
“We have achieved our first full year of profit and shown that we can accelerate customer growth, at scale, and grow revenue across all of our product lines,” CEO Nik Storonsky said in a comment, adding that the company was granted a full banking license from the European Central Bank in 2021.
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Revolut Auditor Warns Revenues May be “Misstated”
Shortly after the company released its earnings report for 2021, Revolut auditor BDO warned that its 2021 revenues might be materially misstated. The auditor said that the report was correct “except for the possible effects of the matters described in the basis for the qualified opinion section” of the report.
The accounting firm said it hasn’t been able to satisfy itself with the “completeness and occurrence” of revenues within three business divisions totaling £477 million ($588 million) — which accounts for almost 75% of the group’s total reported revenues for 2021. It said:
“We have concluded that where the other information refers to revenue or related balances these may be materially misstated for the same reason.”
Mikko Salovaara, Revolut’s chief financial officer, told the FT that the issue with the audit was ostensibly linked to the company’s IT systems, which had failed to keep up with the pace of growth. He said:
“We think that 2021 is a one-off where we needed to do that upgrade. For 2022, we expect a much more normal audit cycle, although it’s still going to be pushed a bit into the first half of the year.”
Revolut Hires Lawyers, Insists on the Validity of Earnings Report
The FT reported Thursday that Revolut had issued a public statement and hired lawyers to prove the “misreporting” of the audit opinion by BDO. The company argued that the $769 million revenues have been “independently verified” and were “not in question.”
Financial Times also said it received two letters from Revolut’s lawyers, Schillings, which requested a change in a report about the audit. The letters reportedly made claims similar to those in the public statement, including that “the annual report confirmed that the overall revenue generated by Revolut was correct.”
Revolut’s statement said BDO’s report should be understood to mean “that it was not possible to precisely confirm how much [revenue] was attributable to each particular [business] stream but does not refer to lack of verification over revenue overall.”
Meanwhile, some board members have called the public statement and hiring of lawyers an “overreaction,” the FT said, citing two people with knowledge of the matter. The board also reportedly showed a lack of understanding of BDO’s opinion.
The recent mess comes when the board is pressured to improve Revolut’s culture and governance as it seeks a UK banking license.
It is worth noting that BDO did not raise any concern regarding Revolut’s ability to continue operations. The accounting firm said it had verified 100% of cash balances held on behalf of customers with third parties and 99.99% of the fintech’s own cash and short-term assets.
Why do you think Revolut is determined to prove the validity of its earnings report? Let us know in the comments below.