Watchdog scrutiny puts MHA’s ISG audit and IPO at risk

The UK’s Financial Reporting Council (FRC) has launched an investigation into accountancy firm MHA over its audit of failed construction giant ISG, adding pressure to the firm as it prepares for a high-profile stock market debut.

MHA, a member of the Baker Tilly global network, faces scrutiny over its audit of ISG for the financial year ending December 2022. ISG’s collapse last year left more than £1 billion in public sector contracts in limbo, including key prison infrastructure projects.

The investigation comes as the FRC steps up efforts to restore confidence in the UK’s audit sector, which has faced repeated calls for reform following high-profile corporate failures.

MHA’s Expansion Plans at Risk

The timing of the probe presents a significant hurdle for MHA, which had been pursuing an ambitious £125 million fundraising effort through a listing on London’s junior stock market.

The planned public listing was intended to finance investments in technology and artificial intelligence, part of the firm’s broader expansion strategy.

Despite the regulatory scrutiny, MHA has signaled its commitment to long-term growth, with potential acquisitions of other Baker Tilly firms still on the table.

Echoes of Carillion’s Collapse

ISG’s failure marks the most significant collapse in the UK construction sector since Carillion’s high-profile demise in 2018, which triggered increased regulatory pressure on auditors and financial oversight.

ISG had been a critical contractor for government projects, particularly in the prison sector, where it was responsible for nearly 20% of the additional prison places planned under the Ministry of Justice’s expansion program.

Its collapse has thrown these plans into disarray, highlighting the risks associated with large-scale public sector outsourcing.

Audit Quality Under Scrutiny

MHA has stated it will fully cooperate with the FRC’s investigation and reiterated its commitment to audit quality. However, the probe raises fresh concerns about whether regulatory safeguards in the UK’s audit sector are strong enough to prevent corporate failures.

The case is likely to fuel ongoing debates about the effectiveness of current audit regulations, particularly as the government looks to strengthen the oversight framework. With Labour signaling plans to introduce a new audit regulator with greater enforcement powers, the outcome of the FRC’s investigation could have broader implications for the industry.

As MHA navigates these regulatory headwinds, the firm’s ability to reassure investors and clients will be crucial. The audit watchdog’s findings could determine whether MHA’s public listing ambitions stay on track—or become another casualty of the UK’s audit reform drive