City A.M. reports that the Financial Reporting Council — the UK's accounting and audit watchdog — is looking into allegations of financial misreporting at Battersea Power Station Development Company, the Malaysian-owned business behind the London redevelopment. According to the report, the claims centre on undeveloped land at the site allegedly being valued at hundreds of millions of pounds above independent estimates, in the internal accounts of a sister company. It is worth being precise about where this stands: the report is clear that the FRC's enquiry “does not yet constitute a formal investigation.”
How the claims came to light
Per the report, Don O'Sullivan took over as chief executive of the development company in June 2024 and, by November that year, had raised concerns internally about the valuations. He was suspended that December and dismissed the following May on charges of gross misconduct, before launching an employment tribunal claim against the owners and several executives in March this year. It is a dispute with real people, real jobs and a genuinely large sum attached — and, at this stage, allegations that have not been through a formal investigation or a tribunal ruling.
The scale is different. The principle isn't.
Most businesses we work with are not managing a multi-billion-pound redevelopment and will never need to think about the Financial Reporting Council. But the issue at the centre of the story — a number in the accounts drifting away from what is actually true, with nobody independent catching it early — is exactly the risk that sits underneath much smaller companies. The scale is smaller and so are the consequences, but the mechanism is identical, and it almost never requires bad intent. A figure gets carried forward because nobody has looked at it recently. That is all it takes.
Four places where a small company's numbers quietly stop being true
In practice, the drift shows up in the same handful of places:
- Trade debtors. The aged debtors report carries invoices nobody seriously expects to collect, because writing one off feels like admitting defeat. The balance sheet says the money is coming.
- Stock. Held at cost, as the rules require, but the rule is the lower of cost and net realisable value — and lines that have not moved in eighteen months are rarely still worth what you paid.
- Work in progress. Time and materials on a job the client is disputing, sitting on the balance sheet at full value while the argument runs.
- Fixed assets. Kit written down on a schedule that bears no relation to how long it actually lasts, in either direction.
Each of those overstates profit. Overstated profit means overstated tax, decisions made against a number that is not real, and a nasty correction whenever somebody finally looks.
Worked example: the £49,500 that wasn't there
Illustrative figures. A trading company turns over £1.4 million with a 31 December year end. Its management accounts show a profit of £128,000, and the owner has been planning a hire on the strength of it.
A proper review of the balance sheet finds two things:
- Trade debtors of £186,000 include £24,500 more than 120 days old — £16,800 from a customer now in liquidation and £7,700 on a job the customer disputes. Provided against in full: £24,500.
- Stock is carried at cost of £142,000. Of that, £31,000 has not moved in eighteen months and would realistically fetch £6,000. Written down to net realisable value: £25,000.
Together that is £49,500 coming off the profit. Real profit is £78,500, not £128,000 — the figure the owner was steering by was overstated by 63%.
The correction is not all bad news. With profits in the marginal band between £50,000 and £250,000, where the effective Corporation Tax rate is 26.5%, that £49,500 reduction is worth £13,117 in tax. And the £16,800 owed by the liquidated customer carries VAT of £2,800, reclaimable through VAT bad debt relief once the debt is more than six months overdue and has been written off in the refunds for bad debts account. Roughly £15,900 back, and a profit figure the owner can actually use.
The hire may still be the right call. It is now a decision rather than a guess.
The safety net most companies no longer have
For financial years beginning on or after 6 April 2025, a company can claim audit exemption if it meets at least two of three tests: turnover of no more than £15 million, assets of no more than £7.5 million, and 50 or fewer employees on average. Those thresholds went up from £10.2 million and £5.1 million, which means a large number of companies that once had an audit no longer do.
That is a genuine cost saving and, for most owner-managed businesses, entirely sensible. It also removes the one process that used to force somebody independent to ask why a debtor from two years ago was still sitting there. If you have dropped out of audit, the question is what replaced it — because “nothing” is a common and expensive answer.
What the law already asks of you
Whether or not you are audited, section 386 of the Companies Act 2006 requires every company to keep adequate accounting records: enough to show and explain its transactions, to disclose the company's financial position with reasonable accuracy at any time, and to allow the directors to ensure the accounts comply with the Act. “At any time” is doing a lot of work in that sentence. Records reconstructed in the eight weeks before a filing deadline do not meet it.
The deadlines have teeth of their own. A private company must file its accounts within nine months of the year end, and Companies House penalties run at £150 for up to a month late, £375 for one to three months, £750 for three to six months and £1,500 beyond that — doubled if you file late in two successive financial years. Those are civil penalties on the company and separate from anything HMRC does about a late tax return.
The review you can run this quarter
- Print the aged debtors report. Any invoice over 90 days: name the date it will be paid, or provide against it. There is no third option.
- Take the stock list and flag every line that has not moved in twelve months. Value those at what you would actually get, not what you paid.
- Check work in progress against the jobs it relates to. Anything disputed comes out until the dispute is settled.
- Compare your asset register to what is physically in the building. Things get scrapped and sold without anybody telling the bookkeeper.
- Have somebody other than the person who prepared the numbers ask why each of those balances is what it is.
Step five is the one that matters most, and it is the one this story is really about.
Why independent, current numbers matter at any size
The fix at any scale is the same: numbers reviewed properly and kept current, by somebody other than whoever benefits from them looking a certain way. That is the whole point of proper management accounts — regular reporting with commentary that tells you honestly what is going on, rather than a set of figures confirming what you hoped. It starts with record-keeping that is current in the first place, which is what cloud bookkeeping is for, and it is easier to sustain when the review is built into the year rather than bolted on, which is how our accountancy packages are set up. If you want a starting point, our piece on the five numbers every owner should know is where most of these reviews begin. If nobody independent has checked whether your numbers still reflect reality, that is worth putting right long before it becomes anybody else's business.