The Serious Fraud Office has opened a criminal investigation over the accounting and business practices of listed company Quindell after it overstated annual profits by £312m.
Revised annual accounts posted by Quindell today show a £175m pre-tax profit from legal services corrected to a £137m loss.
The company, which once claimed to be the world's largest listed legal services provider, today published much-awaited revised accounts for the year ending 31 December 2014.
Quindell called in accountant PwC to review previous accounting policies dating back to December 2012 and found specific problems relating to its portfolio of noise-induced hearing loss claims, which grew from 4,000 in 2013 to 62,000 last year.
The company acknowledged ‘errors’ in revenue and profit figures based on these claims, by basing those numbers on cases before any admission of liability.
Legal services are treated in the accounts as ‘discontinued activities’, as they form the majority of the professional services division sold earlier this year for £637m to Australian firm Slater and Gordon.
Under the revised accounts, discontinued activities revenue for 2014 was calculated at £220m rather than the £510m originally declared. Pre-tax profits of an estimated £175m became losses of £137m.
For 2013, re-calculated revenue fell by £42.8m to £120.5m. Pre-tax profits disappeared from £39m to losses of £17m.
Group finance director Mark Williams, who chairs the disclosure committee constituted this year, said the organisation wanted a ‘demonstrable break’ from old ways of calculating revenue and profit. The new focus will be on settlements and admissions of liability.
The group has already conceded that its accounting practices were at the ‘aggressive end’ of what was acceptable, and Williams said the NIHL claims figures were now considered ‘not acceptable’.
‘Recognition of revenue is a highly complicated matter and subject to a high degree on judgement and subjectivity,’ he said.
‘There are different ways to approach the subject which are all potentially appropriate. The new board has swung the pendulum away from the aggressive end to the conservative end.’
Williams said the value of the professional services division sold to Slater and Gordon has not been changed by the revision.
‘They were given a huge amount of disclosure and we are well aware that the board was likely to change the approach in relation to accounting policies. It doesn’t change the value of the asset they purchased.’ Shareholders are likely to be paid £1 per share from the cash received from Slater and Gordon.
The Financial Conduct Authority is continuing to investigate public announcements made up to the end of 2014.
The company plans to re-open trading on the London Stock Exchange on Thursday morning after suspending trading on 24 June.
Quindell has said it will co-operate with all relevant regulatory and law enforcement authorities.