Avant Homes overstated assets by £43.4m ahead of acquisition

Regional finance teams use the site margin – a percentage calculated using the anticipated revenue and costs of a site – to transfer amounts from work-in-progress costs on the balance sheet to the cost of sales. 

After the accounting period closes, this figure is fixed.

Viva Midco said there had been “significant errors and omissions” in the reporting of costs to complete – a forecast of anticipated revenues and costs – for “key budget items” such as planning obligations and final site completion works.

Another issue was that “open orders could be raised with suppliers with little or no tendering process leading to a lack of visibility of future cost allowances”.

Development budgets were uploaded as lump sums, which “did not provide any cost control”, triggering “shortfalls across the group”.

Viva Midco added that “costs were transferred between developments by general cost transfers”, which led to “an overstatement of the value of work in progress”.

Adjustments have been made for costs that “should have been known about” at the time.

A review of all sites, both active and closed, revealed that Avant had understated its cost of sales by £39.1m, combined with a £5.7m fair value adjustment to reflect lower site margins and a tax adjustment of £1.4m.

The directors have “implemented wide-ranging changes” to make sure sites are forecast accurately, including procurement controls and making sure budgets for new developments are transparent.

All regional businesses will have to monitor their closed sites to ensure the cost of outstanding remedial works are identified, Viva Midco said.

Avant had 60 live developments at the time of the acquisition.

Sky News reported earlier this month that Avant had made an all-share proposal to buy Crest Nicholson, which the house builder rejected.

Rival Bellway looks set to be successful in its latest offer for Crest of £650bn, which Crest’s board said last week it was “minded” to recommend.