DELOITTE has become embroiled in the accounting scandal at iSoft after it emerged that the big four accounting firm had worked for the IT group during a period now under investigation by the City watchdog.

Deloitte, which was appointed iSoft’s auditor in July last year, is understood also to have worked for the company during the 2004-05 financial year, when iSoft is alleged to have booked revenues incorrectly.

While RSM Robson Rhodes was iSoft’s auditor during that time, Deloitte is thought to have helped iSoft to work on its switch to new IFRS accounting rules. In August iSoft said that Deloitte had not acted for the company in the period covered by the FSA investigation. However iSoft confirmed last night that Deloitte had worked for the company in the 2004-05 financial year. Deloitte refused to comment on whether it had worked for iSoft in that period.

Although IFRS review work excludes audit procedures, Deloitte’s work is thought to have included looking at the company’s policies on booking revenues.

After an internal investigaton into possible accounting irregularities at iSoft earlier this year Deloitte and Eversheds, the law firm, concluded that some revenues booked in the 2003-04 and 2004-05 financial years had been booked incorrectly according to the policy in place at the time.

The findings triggered a formal investigation by the Financial Services Authority.

Separately, the Accountancy Investigation and Disciplinary Board (AIDB), the accountancy industry body, is to disclose today that it is launching an investigation into the iSoft affair. The investigation will look at the role of RSM Robson Rhodes, iSoft’s former auditor.The investigation will draw in former executive and non-executive directors, including Sir Digby Jones, the former director-general of the CBI, who was senior non-executive director of iSoft until last year.

Although the AIDB investigation could draw on the knowledge of former directors, it can enforce fines or restrictions on accountants only. News of the AIDB’s investigation comes after a troubled period for iSoft, which is a key supplier of software to the NHS’s £6.2 billion IT modernisation programme.

Shares in the group have slumped since the beginning of the year, driven lower by a string of profits warnings and an accounting policy change. In June the group said it was changing its accounting policy, a move that forced it to rewrite accounts from previous years. Revenues already booked will be recognised in future periods.

The change was brought about by the group’s increasing dependence on larger contracts, including those won as part of the National Programme for IT, the NHS’s modernisation programme. That increasing reliance on big contracts has typically increased the amount of time between the supply of software licences and the point at which customers deploy the software.

SOFTWARE BUGS

April 2006: iSoft issues a profit warning; profits will miss forecasts by £25 million

June 8: changes its accounting policy, wiping out profit from previous years

June 14: chief executive Tim Whiston resigns

July 7: delays publishing annual results because it is locked in talks with its bankers

July 20: reveals that its auditors at Deloitte have found possible accounting irregularities while completing their year-end audit

August 24: the FSA announces formal investigation into accounting irregularities

October 18: iSoft admits that problems with its NHS contract will cut revenue by up to 15 per cent; tells shareholders it has entered talks with potential buyers; appoints bankers to advise on possible takeover

October 24: AIDB announces investigation into iSoft and its directors

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