Revolut’s auditor warns that revenue for 2021 “may be materially misstated”

Revolut’s auditor warned that the design of the fintech’s IT systems meant there was a risk that the bulk of its 2021 revenue was materially misstated, even though it turned a profit for the first time that year.

The crypto boom helped Revolut on Wednesday report a net profit of £26m in 2021, compared with a loss of £223m the previous year. Revenue in 2021 almost tripled to £636m.

But the group’s auditor, BDO, issued a qualified opinion on Revolut’s overdue accounts because it had been unable to fully verify £477mn of its revenue – including the currency and wealth division, which includes crypto.

Auditors said in their report to the accounts that they had been unable to assure us of the completeness of these earnings, meaning that references to the company’s earnings “may be materially misstated”.

Revolut has evolved from a low-fee money transfer service to offering bank accounts across Europe through its Lithuanian banking license. It is also registered as an e-money institution in the UK. A funding round in the summer of 2021 valued the group at $33 billion and ensured it did not need to return to the market as technology valuations fell last year.

About a third of its revenue in 2021 came from its cryptocurrency trading, Revolut said. Fintech first entered crypto in 2017, ahead of most of its rivals.

BDO had pushed the fintech to improve its internal controls after the UK accounting regulator, the Financial Reporting Council, found there was an “unacceptably high” risk of “material misstatement” in its 2020 accounts.

The FRC findings, revealed by the Financial Times in September, included that BDO’s 2020 audit had a “deficient” approach to revenue recognition.

Revolut’s CFO Mikko Salovaara told the FT on Wednesday that the company’s IT systems had not been able to keep up with the pace of growth.

“We think 2021 is a one-off period where we needed to do that upgrade,” he said. “For 2022, we expect a much more normal audit cycle, although it’s still going to be pushed a bit into the first half of the year.”

BDO said in its report on the accounts that because it had been unable to rely on Revolut’s IT systems and controls through 2021, it had resorted to other methods such as verifying cash holdings and cash in client accounts. It was forced to use these procedures because no reliable documentation of the transactions was produced or maintained outside the IT system. Such an approach would normally require an auditor to check millions of individual transactions and contact counterparties, but would not reveal problems such as missing transactions.

The auditor did not issue any warning about Revolut’s ability to continue as a going concern, saying it had verified 100 percent of its cash holdings on behalf of customers with third parties.

Revolut said the problem with the IT systems “was rectified in 2021” and that it “did not anticipate that our [2022] accounts will reflect this limitation”.

The group’s retail customers rose by almost 50 percent to 16.4 million in 2021. It said the figure had grown to more than 27 million by 2023. Revenue rose further in 2022, Revolut said, reaching more than £850 million. The group did not publish its profitability last year.

“Our profitability in 2021 was despite the economy suffering a significant prolonged shock from global shutdowns, continued travel bans and Covid-19 effects,” CEO Nik Storonsky said. “At the same time, the accelerated shift to digital services and remote work increased our number of customers and the amount they used our app.”

Revolut has had significant growing pains in its quest to challenge traditional banks. Insiders have revealed a highly taxing culture, and the company was hit by the departure of senior compliance staff in 2022.

Revolut was required to submit accounts for the year ending December 2021 to Companies House in September 2022. The fintech was then given an extension until the end of December – a deadline it had also failed to meet.

Revolut has been applying for a UK banking license since early 2021, which could boost profitability, especially as higher interest rates make deposits more valuable. It could also help convince regulators in other markets to offer licenses.

Salovaara said the license was coming “very soon, imminently[ly]any day now”, adding that Revolut felt they had a good relationship with regulators.

The boost for Revolut from crypto is unlikely to have been sustained last year, when prices for several digital currencies plunged and FTX, one of the most hyped players in the nascent industry, collapsed. Salovaara said crypto accounted for less than 10 percent of revenue in 2022.