More questions about the finances of British Steel have emerged, after reports that its auditor resigned earlier in the year. According to The Guardian, Mazars stepped away from the role after British Steel refused to pay for signing off on its books.
British Steel Limited is a long steel products business. It was founded in 2016 with assets acquired from Tata Steel Europe by Greybull Capital, before being purchased by the China headquartered Jingye Group in 2020. At that point, the company’s auditor was already Mazars – and according to sources at the firm, that year’s audit, proved more tricky than expected. That year, British Steel reported revenues of £844 million but suffered heavy operating losses.
It was reportedly paid £323,000 for its work on the company’s 2020 audit. However, it has since sought compensation for the difficulties of that audit something reports in the British press suggest the steelmaker balked at. At the same time, Mazars quoted fees to sign off on the company’s books for the latest financial year – and British Steel seems to have been unwilling to meet those expectations either.
In a filing at Companies House, Mazars noted its resignation as auditor for British Steel, due to a dispute over what the client was willing to pay for its services. The resignation occurred in July, but only emerged in November, days after British Steel owner Jingye was reported to have asked the UK Government for financial support.
Mazars told Companies House, “Based on our understanding of the complexity, risk and control environment of the company gained from our prior year audit, we proposed the minimum fee we believed necessary to audit the financial statements of the company to an acceptable level of audit quality… Despite extended discussions, the company was not prepared to agree to that minimum fee level… Furthermore, to date, the company has also not agreed to pay requested overruns for delays and audit issues arising during the prior year audit. Consequently, we have resigned as auditor to the company.”
While Mazars also noted it was “not aware of any matters” that it should bring to the attention of the company’s creditors, its exit will have raised further questions on the future of British Steel. Mid-tier auditors have recently been de-risking their client lists, with the Financial Reporting Council having noted many were exhibiting an uptick in unsatisfactory accounting work. Some attributed this to Big Four firms dropping high-risk clients, and allowing smaller firms to take them on as a ‘win’, while being unaware they were not equipped to handle the case.
In the case of British Steel – which was already the creation of an administration process – the company has publicly said it is facing significant challenges because of economic slowdown, surging inflation and exceptionally high energy and carbon prices. It has been reported that the Chinese owners have told ministers that without a state bail-out, the company’s blast furnaces are unlikely to be operable.
Looking ahead, a British Steel spokesperson told The Guardian that a tendering exercise following Mazars’ exit had seen another firm appointed “to act as our auditors.” However, the company stopped short of confirming which firm it had actually appointed.