CRR Case Summaries and Entity-specific Press Notices
The FRC publishes, on a quarterly basis, summaries of its findings from recently closed reviews that resulted in a substantive question to a company (‘Case Summaries’). In addition, it publishes the names of companies whose reviews were closed in the previous quarter without the need for a substantive question. No Case Summary is prepared for such reviews.
Case Summaries, which are available for cases closed in the quarter ending March 2021 onwards, are included in the table below. As, currently, the FRC is subject to existing legal restrictions on disclosing confidential information received from a company, the Case Summaries can only be disclosed with the company's consent. Where consent has been withheld by the company, that fact is disclosed in the table.
From March 2018 until March 2021, the FRC published the names of companies whose reviews were closed in the previous quarter but did not prepare Case Summaries. However, on an exceptional basis, specific cases may be publicised through entity-specific Press Notices, which can also be found in the table below.
The FRC’s reviews are based solely on the company’s annual report and accounts (or interim reports) and do not benefit from detailed knowledge of the company’s business or an understanding of the underlying transactions entered into. They are, however, conducted by staff of the FRC who have an understanding of the relevant legal and accounting framework. The FRC’s correspondence with the company provides no assurance that the annual report and accounts (or interim reports) are correct in all material respects; the FRC’s role is not to verify the information provided but to consider compliance with reporting requirements. The FRC’s correspondence is written on the basis that the FRC (which includes the FRC’s officers, employees and agents) accepts no liability for reliance on its letters or Case Summaries by the company or any third party, including but not limited to investors and shareholders.
Key
- Only a certain number of CRR’s reviews result in substantive questioning of the Board. Matters raised may cover questions of recognition, measurement and/or disclosure.
- CRR’s routine reviews of companies’ annual reports and accounts generally cover all parts over which the FRC has statutory powers (that is, strategic reports, directors’ reports and financial statements). Similarly, CRR’s routine reviews of companies’ interim reports will generally cover all information in that document. Limited scope reviews arise for a number of reasons, including those conducted when a company’s annual report and accounts or interim report are selected for thematic review or reviews that have been prompted by a complaint. In accordance with the Supervision Committee’s Operating Procedures, CRR does not identify those companies whose reviews were prompted by a complaint.
- The FRC may ask a company to refer to its exchanges with CRR when the company makes a change to a significant aspect of its annual report and accounts or interim report in response to a review.
- Case closed after 1 January 2021 but performed under operating procedures that did not allow for the publication of Case Summaries.
- From the quarter ended June 2023, the FRC started identifying the auditor of the annual report and accounts, or the audit firm that issued a review report on the interim report, that was the subject of the CRR review. This information was also back-dated for closed cases publicised from the quarter ended September 2022. Cases marked N/A relate to those published prior to September 2022 or interim reviews that did not have a review opinion.’
Case Summaries
CRR Case Summaries and Entity-specific Press Notices (Excel version)
| Entity | Pennon Group plc |
|---|---|
| Balance Sheet Date | 31 March 2022 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Limited |
| Quarter Published | March 2023 |
| Auditor (5) | Ernst & Young LLP |
| Case Summary / Press Notice |
Cash flow for acquisition costs We asked the company to explain how the inclusion of the cash flow for acquisition costs within investing activities, in the group cash flow statement, complied with the requirements of IAS 7 ‘Statement of Cash Flows’. The company confirmed that the cash flow should have been presented within operating activities in the group cash flow statement but that it did not propose to restate the statement as it did not consider the effect of the change to be material. |
| Entity | Petrofac Limited (3) |
| Balance Sheet Date | 31 December 2021 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | March 2023 |
| Auditor (5) | Ernst & Young LLP |
| Case Summary / Press Notice |
Classification of cash flows in relation to restricted cash, amounts owed to and from group entities and related derivatives We requested an explanation of the basis for presenting working capital adjustments relating to other net current financial assets within operating activities in the consolidated statement of cash flows, as well as a breakdown of these adjustments. The company provided the information and indicated in its analysis that the adjustments comprised cash flows in relation to restricted cash and derivatives. It agreed to include an explanation for this treatment of restricted cash in its next annual report and accounts. We requested similar information in respect of the parent company’s statement of cash flows for the classification within operating activities of working capital adjustments relating to other financial assets and liabilities, and cash flow movements in amounts due to and from group entities and related derivatives. In its response the company reconsidered its approach and agreed to restate the comparative cash flows in its next annual report and accounts to present movements in restricted cash (the principal component of the other financial assets and liabilities line) within investing activities and the cash flows in relation to amounts due to and from group entities within financing and investing activities, respectively. It also agreed to restate the related derivative cash flows on the same basis. Classification of cash receipts from subleases During our correspondence, we also questioned the basis for classifying cash receipts from subleases to joint operation partners within financing activities in the consolidated statement of cash flows. As a result of our enquiry, the company concluded that sublease receipts should be presented within investing activities and agreed to restate the comparative consolidated statement of cash flows and make consequential changes to its comparative consolidated income statement to present the lease finance income and expense on a gross basis, in its next annual report and accounts. In addition, the company agreed to enhance its IFRS 16 ‘Leases’ disclosures in relation to the subleases to joint operation partners. As these restatements affected the primary statements, we asked the company to disclose the fact that the matters had come to its attention as result of our enquiry. |
| Entity | Pets at Home Group Plc |
| Balance Sheet Date | 31 March 2022 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Full |
| Quarter Published | March 2023 |
| Auditor (5) | KPMG LLP |
| Case Summary / Press Notice | N/A |
| Entity | Phoenix Group Holdings plc |
| Balance Sheet Date | 31 December 2021 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | March 2023 |
| Auditor (5) | Ernst & Young LLP |
| Case Summary / Press Notice |
Fair value measurement of level 3 assets We asked the company for quantitative details of the significant unobservable inputs used to measure the fair value of assets held at level 3 in the fair value hierarchy. The company provided the information requested and agreed to enhance its disclosures in this respect in future annual reports and accounts. |
| Entity | Primary Health Properties PLC |
| Balance Sheet Date | 31 December 2021 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Limited |
| Quarter Published | March 2023 |
| Auditor (5) | Deloitte LLP |
| Case Summary / Press Notice | N/A |
| Entity | Rathbones Group Plc (3) |
| Balance Sheet Date | 31 December 2021 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | March 2023 |
| Auditor (5) | Deloitte LLP |
| Case Summary / Press Notice |
Statement of cash flows We asked the company for further information about how the repayment of debt following the acquisition of Saunderson House was treated in the consolidated statement of cash flows. The company clarified that the repayment was made to a third party and explained that following further discussions, it had concluded that it would be more appropriate to classify the third-party debt repayment as a financing outflow in the consolidated statement of cash flows. The company agreed to restate the comparative period of the consolidated statement of cash flows in its 2022 Annual Report and Accounts. As the change affected a primary statement, we asked the company to disclose the fact that the matter had come to its attention as a result of our enquiry. We asked the company for further information about amounts reported in the consolidated statement of cash flows for the repurchase and issue of ordinary shares, and the purchase and sale of investment securities. The company provided a satisfactory answer to our questions and gave an undertaking to provide enhanced note disclosures in its 2022 Annual Report and Accounts. Share-based payments We asked the company for further information about the amounts presented in the primary financial statements for share-based payments. The company provided a satisfactory answer to our questions and gave an undertaking to provide enhanced disclosures in its 2022 Annual Report and Accounts by providing further disaggregation of amounts presented in the consolidated statement of changes in equity relating to share-based payments. |
| Entity | RHI Magnesita N.V. |
| Balance Sheet Date | 31 December 2021 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Limited |
| Quarter Published | March 2023 |
| Auditor (5) | PricewaterhouseCoopers Accountants N.V. |
| Case Summary / Press Notice | N/A |
| Entity | S4 Capital plc |
| Balance Sheet Date | 31 December 2021 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | March 2023 |
| Auditor (5) | PricewaterhouseCoopers LLP |
| Case Summary / Press Notice |
Contingent consideration and holdback We requested further information about the balance for contingent consideration and holdback and asked for certain disclosures relating to contingent consideration required by IFRS 3 ‘Business Combinations’ and IFRS 13 ‘Fair Value Measurement’. The company provided further analysis of the contingent consideration and holdback balance and the disclosures requested. In its 2022 accounts, the company undertook to disclose additional details of contingent consideration arrangements arising from significant acquisitions in the year ended 2021. Furthermore, it will explain the changes recorded in 2021 to the amount of contingent consideration recognised. We also asked for further information about employment-linked contingent consideration arrangements, which the company provided, together with an undertaking to disclose details of such arrangements arising from significant acquisitions in 2021, in its 2022 accounts. Deferred equity consideration We asked the company to explain the basis for classifying deferred equity consideration within equity. The company provided a satisfactory response. Alternative performance measures (APMs) Proforma results were disclosed in the annual report and accounts, but it was unclear how these measures reconciled to the statutory IFRS measures and why management considered them useful information regarding the company’s financial performance. The company committed to make improvements to its APM disclosures in its 2022 accounts, including reconciling proforma measures to their IFRS equivalent and explaining the reason for use of the APM. We also sought an explanation for controlled billings, which the company provided, together with an undertaking to define this APM in its next accounts and reconcile the amount to revenue reported in accordance with IFRSs. Ultimate controlling party In response to our question, the company gave a satisfactory explanation of the factors considered in concluding that Sir Martin Sorrell was not the ultimate controlling party of the company. |
| Entity | Scirocco Energy PLC |
| Balance Sheet Date | 31 December 2021 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Limited |
| Quarter Published | March 2023 |
| Auditor (5) | PKF Littlejohn LLP |
| Case Summary / Press Notice |
Joint venture We asked the company to explain the extent of its influence over an investee presented as a ‘joint venture or associate’. The company provided a satisfactory explanation of its voting rights and power to appoint directors, through which it has joint control over the investee, and confirmed that a call option to acquire a further interest in the investee is not currently exercisable. The company also confirmed that it considers the investee to be a joint venture and agreed to provide, in its future annual reports and accounts, in full the joint venture disclosures in accordance with IFRS 12, ‘Disclosure of Interests in Other Entities’. Classification of loan receivable We also sought and received clarification of the basis on which the company classified its loan to the investee as a current asset. |
| Entity | Scotia Gas Networks Limited |
| Balance Sheet Date | 31 March 2022 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | March 2023 |
| Auditor (5) | Ernst & Young LLP |
| Case Summary / Press Notice |
Net credit adjustment We observed that the company disclosed a ‘net credit risk adjustment’ of £31.9m that reduced the fair value of financial liabilities. We asked the company to clarify which financial instruments this adjustment related to. We also asked for further information on the valuation technique used and the reasons why the adjustment was so significant in the current year, both in terms of the amount of financial liabilities at fair value and compared to the same adjustment made in the prior year. The company confirmed that the ‘net credit risk adjustment’ related to the fair value of inflation-linked swaps that had been entered into during the year ended 31 March 2022 and that an appropriate valuation technique had been utilised. They also explained that the magnitude of the adjustment resulted from the swaps having long dated tenors and differences in cash settlement arrangements giving rise to asymmetric cash positions. Consequently, the counterparty is exposed to greater credit risk. |
| Entity | SDCL Energy Efficiency Income Trust Plc |
| Balance Sheet Date | 31 March 2022 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Full |
| Quarter Published | March 2023 |
| Auditor (5) | PricewaterhouseCoopers LLP |
| Case Summary / Press Notice | N/A |
| Entity | Sequoia Economic Infrastructure Income Fund Limited |
| Balance Sheet Date | 30 September 2022 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Full |
| Quarter Published | March 2023 |
| Auditor (5) | Grant Thornton Limited, Guernsey |
| Case Summary / Press Notice | N/A |
| Entity | Severfield plc |
| Balance Sheet Date | 26 March 2022 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | March 2023 |
| Auditor (5) | KPMG LLP |
| Case Summary / Press Notice |
Accounting for contract variations We asked the company to explain whether the contract variations mentioned in its accounting policies represented contract modifications and, if so, the basis on which it concluded that it was appropriate to account for such modifications before they are approved by customers. We closed the matter after the company explained that the variations were contract modifications and clarified that it recognises revenue relating to modifications when they have been approved, as required by IFRS 15 ‘Revenue from Contracts with Customers’. It agreed to improve the accounting policy disclosed in its FY2023 accounts. Contract assets We raised a query in the light of a comment in the accounts which suggested that steel purchased to meet FY2023 production requirements may have been included in contract assets, rather than in inventory. We closed our query after the company clarified that contract assets did not include inventory and agreed to reconsider the comments included in its next annual accounts. Capitalised contract costs We asked the company to explain the accounting policy for capitalised contract costs mentioned in its disclosures, and the basis on which the policy complied with IFRS 15. We closed our query after it explained that the costs were not material. Cash balances and overdrafts We questioned why overdrafts in the parent company accounts were greater than those in the consolidated accounts. The company explained that, in its consolidated accounts, it had offset cash and cash equivalents of £1.7m against overdrafts. It acknowledged that it had not met the criteria required by IAS 32 ‘Financial Instruments: Presentation’ to allow such a presentation. We closed the matter after the company explained that it will correct the error prospectively in its next annual accounts. It explained that it did not intend to restate the comparative information in those accounts as it did not believe that the error was material. In closing our query, we observed that the error exceeded audit materiality of £1.4m and we explained that we expect the company to consider whether the matter involved significant judgement, the disclosure of which is required by paragraph 122 of IAS 1 ‘Presentation of Financial Statements’. |
| Entity | Spire Healthcare Group plc |
| Balance Sheet Date | 31 December 2021 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | March 2023 |
| Auditor (5) | Ernst & Young LLP |
| Case Summary / Press Notice |
Impairment testing of goodwill and property We asked the company for further information about whether a reasonably possible change in the key assumptions would result in the recoverable amount of goodwill being less than the balance sheet carrying amount. The company provided a satisfactory response and agreed to clarify its disclosures in future. We enquired about the company’s disclosures of estimation uncertainty relating to the estimates used to test for impairment under IAS 1 'Presentation of Financial Statements'. The company agreed to clearly distinguish those disclosures relating to estimation uncertainty required under IAS 1, where there is significant risk of a material adjustment in the next financial year, from additional disclosures provided voluntarily. We also asked about the basis on which a significant improvement in hospital performance was assumed in the value-in-use calculations. The company provided a satisfactory explanation and agreed to clarify this in its future disclosures. Taxation We asked for an explanation of the tax adjustment included in the tax reconciliation in respect of a sale and leaseback transaction. The company explained that this principally resulted from the release of a deferred tax liability, originally recognised on a business combination, and the recognition of a deferred tax asset relating to the lease. In its future reporting the company agreed to disclose the fact that the majority of its freehold properties had been acquired by way of business combinations which would explain why they had attracted deferred tax. |
| Entity | SSE plc |
| Balance Sheet Date | 31 March 2022 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Full |
| Quarter Published | March 2023 |
| Auditor (5) | Ernst & Young LLP |
| Case Summary / Press Notice | N/A |