UPDATE 2-UK building distributor SIG says 2016 profit overstated, shares fall

(Adds context on new CEO turnaround, shares, analyst comments)

Feb 1 (Reuters) - Britain’s SIG Plc overstated its 2016 profit by up to 3.7 million pounds ($5.3 million), the building products distributor said on Thursday after a review, less than a month after it revealed an overstatement of cash and trade payables.

SIG said it suspended a number of individuals and was working with auditors Deloitte to ensure “the correct accounting treatment”.

The company, which has been struggling to recover from weak trading in its UK insulation, interiors and offsite construction businesses, said a number of accounts were overstated, “in some cases intentionally”.

Shares in SIG fell as much as 6.3 percent in early trading and were down 5 percent at 154.5 pence at 0953 GMT.

The review followed a whistleblowing allegation of potential accounting irregularities at unit SIG Distribution.

SIG said its forensic review had revealed an overstatement for the year to Dec. 31, 2016 and a further overstatement of up to 400,000 pounds before 2016.

On Jan. 9 it disclosed an overstatement of cash of about 20 million pounds as of December 2016 and of about 27 million pounds as of the end of June 2017.

The company said it identified a number of actions to remedy the problems and had engaged auditors KPMG to conduct a review of financial reporting at the division for the year to December 31, 2017.

Still, SIG reaffirmed its 2017 underlying profit forecast. It is set to announce the full-year results on March 9.

CEO Meinie Oldersma took over in April to lead a turnaround of SIG’s business across Europe. His predecessor, Stuart Mitchell, stepped down after a profit warning.

“The previous management described SIG as a loose federation and the current management is tightening things up. Inevitably as word gets round there is a new sheriff in town, cracks start to appear and weak practices are identified”, Jefferies analysts said in a client note.

$1 = 0.7013 pounds Reporting by Justin George Varghese in Bengaluru; editing by Amrutha Gayathri and Jason Neely