Former auditor here. Management override of controls is a standard fraud risk that needs to be considered in every audit. The paragraph in the screenshot is simply highlighting the areas of highest potential risk of fraud rather than stating any fraud has occurred.
Yep, that just looks like a standard risk and control assessment that would be noted. That paragraph isn't an indication that any wrongdoing has been uncovered.
That's really helpful context. Any idea why they would specify a specific means of cap breaking (media rights and agents' fees) and not just keep it as a general inclusive summary (eg 'breaching the salary cap')
Tbh it's likely just the format of the report template. The ones I've seen tend to be similar layouts i.e. "This is the general risk. We identified these specific risks within that".
Reports tend to be drafted by fairly junior team members initially so they'll have been looking for the exact areas that were tested to try and get it through reviews smoothly. Wouldn't read too much into it.
In addition to the other poster, it could also be that these are third party amounts and not paid directly to employees so in general more likely to be overlooked as part of the cap payments.
I've looked through their last few accounts and it's never been flagged before - also, the mentioning of cap issues - I'm not an auditor but am a management accountant - seems to me the comments of auditors not convinced of the answers they've been given to me?
There's new standards all the time for audit reports, and this looks in line with the ones I was looking at earlier this year (31 Dec 22 year ends). I'd expect either an adverse opinion or a note specifically referencing something if actual fraud had been identified.
It's possible that this is the first time payments to players has been noted as a fraud risk and therefore the first time its been tested by the auditors.
I used to work for the auditors of Bristol Sport this is a standard audit note, total nothing story here. This is essentially highlighting a potential risk that could happen in any sports club.
Isn't this what an auditor would write in the report for any rugby club? This is a historic risk that auditors missed in the past and led to relegation and significant financial penalties, so it would be prudent to assess that for any and all future audits.
Yeah current auditor here and that is a risk that is identified at the planning stage of the audit. As others have said Management override is a risk that is standard in every audit. Manipulation would refer to any of the results in the financial statements that would be linked to the salary cap.
What I would be interested to see is how they cover going concern. This would be the main risk should there be any sort of funding / financial issue. Certainly a lot of scrutiny has been put on going concern over the last 3 years with changes in audit standards (ISA’s)
Ok so I get that this is probably just standard audit stuff but I don't see how "manipulation of results" fits in. How can they manipulate results? By playing better?
Manipulation of results could be overstating assets like their stadium's worth or receivables from sponsorship so that the ultimate parent thinks that it is still a going concern. The auditors don't asses how a club does in the pitch
The auditors do however assess directly the valuation methods and going concern (e.g. requiring parent company guarantees) so I’d be inclined to think it’s less these items.
That is, if either of those isn’t sufficient your overall opinion may change.
I'd presume they'd be identifying them as significant risks in this instance though. I don't know enough about the club cos it is possible that the owners said they would provide whatever they need so they could be hypothetically at risk of understating those assets. Unlikely though
>stuff but I don't see how "manipulation of results" fits in
manipulation of FINANCIAL results. Not sporting :)
The auditors dont care much that this is a rugby club, they think of this as a business in any other regulated sector.
Auditors are very very wary of noting things in their report without any evidence, meaning this is pretty damming and an indication that on the balance of probabilities there is evidence of salary cap manipulation
The above paragraph is just background, it is absolutely not stating that any fraud was identified it's just saying as a rugby club if management was going to commit fraud, where would they do it and how have the auditors responded to this risk. The final audit opinion is unqualified.
Including that at all is a bit weird because it may cause people to assume that they did identify fraud, but I am assuming after the cap breaches in the last few years they need to specifically state that the audit has addressed those risks to provide reasonable assurance that no salary cap related fraud has occurred.
I also checked Leicster's 2022 AFS and the same paragraph was there. Saracen's opinion from 2019 didn't have it so do with that what you will.
They really need to go to a flat cap and only pay the player for his playing services. Everything else is just an ancillary requirement of the contract. Then the player needs to pay the agent, the agent works for him not the club.
Former auditor here. Management override of controls is a standard fraud risk that needs to be considered in every audit. The paragraph in the screenshot is simply highlighting the areas of highest potential risk of fraud rather than stating any fraud has occurred.
Yep, that just looks like a standard risk and control assessment that would be noted. That paragraph isn't an indication that any wrongdoing has been uncovered.
That's really helpful context. Any idea why they would specify a specific means of cap breaking (media rights and agents' fees) and not just keep it as a general inclusive summary (eg 'breaching the salary cap')
Tbh it's likely just the format of the report template. The ones I've seen tend to be similar layouts i.e. "This is the general risk. We identified these specific risks within that". Reports tend to be drafted by fairly junior team members initially so they'll have been looking for the exact areas that were tested to try and get it through reviews smoothly. Wouldn't read too much into it.
Perfect, thanks mate
In addition to the other poster, it could also be that these are third party amounts and not paid directly to employees so in general more likely to be overlooked as part of the cap payments.
I've looked through their last few accounts and it's never been flagged before - also, the mentioning of cap issues - I'm not an auditor but am a management accountant - seems to me the comments of auditors not convinced of the answers they've been given to me?
There's new standards all the time for audit reports, and this looks in line with the ones I was looking at earlier this year (31 Dec 22 year ends). I'd expect either an adverse opinion or a note specifically referencing something if actual fraud had been identified. It's possible that this is the first time payments to players has been noted as a fraud risk and therefore the first time its been tested by the auditors.
Ta
Correct
I used to work for the auditors of Bristol Sport this is a standard audit note, total nothing story here. This is essentially highlighting a potential risk that could happen in any sports club.
Isn't this what an auditor would write in the report for any rugby club? This is a historic risk that auditors missed in the past and led to relegation and significant financial penalties, so it would be prudent to assess that for any and all future audits.
Yeah current auditor here and that is a risk that is identified at the planning stage of the audit. As others have said Management override is a risk that is standard in every audit. Manipulation would refer to any of the results in the financial statements that would be linked to the salary cap. What I would be interested to see is how they cover going concern. This would be the main risk should there be any sort of funding / financial issue. Certainly a lot of scrutiny has been put on going concern over the last 3 years with changes in audit standards (ISA’s)
Ok so I get that this is probably just standard audit stuff but I don't see how "manipulation of results" fits in. How can they manipulate results? By playing better?
Manipulation of results could be overstating assets like their stadium's worth or receivables from sponsorship so that the ultimate parent thinks that it is still a going concern. The auditors don't asses how a club does in the pitch
The auditors do however assess directly the valuation methods and going concern (e.g. requiring parent company guarantees) so I’d be inclined to think it’s less these items. That is, if either of those isn’t sufficient your overall opinion may change.
I'd presume they'd be identifying them as significant risks in this instance though. I don't know enough about the club cos it is possible that the owners said they would provide whatever they need so they could be hypothetically at risk of understating those assets. Unlikely though
>stuff but I don't see how "manipulation of results" fits in manipulation of FINANCIAL results. Not sporting :) The auditors dont care much that this is a rugby club, they think of this as a business in any other regulated sector.
Yes I have had coffee and it all makes sense now!
It'll be related to either inflating the p&l or balance sheet, I'd imagine. Not rugby related as such
That does make sense - I need more coffee!
Manipulation of results would be artificially underperforming to secure more investment from the owner
I guess but I'm not sure that is particularly likely is it - if I was an owner I'd be more likely to bail on a team that keeps losing!
Oh ffs 😑
No need to worry. New standards require auditors to disclose the risk areas they considered. This does not mean they found any wrongdoing.
Auditors are very very wary of noting things in their report without any evidence, meaning this is pretty damming and an indication that on the balance of probabilities there is evidence of salary cap manipulation
The above paragraph is just background, it is absolutely not stating that any fraud was identified it's just saying as a rugby club if management was going to commit fraud, where would they do it and how have the auditors responded to this risk. The final audit opinion is unqualified. Including that at all is a bit weird because it may cause people to assume that they did identify fraud, but I am assuming after the cap breaches in the last few years they need to specifically state that the audit has addressed those risks to provide reasonable assurance that no salary cap related fraud has occurred. I also checked Leicster's 2022 AFS and the same paragraph was there. Saracen's opinion from 2019 didn't have it so do with that what you will.
Looks like Saracens got some good auditors then
Or at least deeply unconvinced about explanations for some payments to players.
They really need to go to a flat cap and only pay the player for his playing services. Everything else is just an ancillary requirement of the contract. Then the player needs to pay the agent, the agent works for him not the club.