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 | Meggitt PLC |
|---|---|
| Balance Sheet Date | 31 December 2021 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Limited |
| Quarter Published | December 2022 |
| Auditor (5) | PricewaterhouseCoopers LLP |
| Case Summary / Press Notice | N/A |
| Entity | Mitie Group plc |
| Balance Sheet Date | 31 March 2022 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Limited |
| Quarter Published | December 2022 |
| Auditor (5) | BDO LLP |
| Case Summary / Press Notice | N/A |
| Entity | Morgan Advanced Materials plc |
| Balance Sheet Date | 31 December 2021 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Full |
| Quarter Published | December 2022 |
| Auditor (5) | Deloitte LLP |
| Case Summary / Press Notice | N/A |
| Entity | Morgan Sindall Group plc |
| Balance Sheet Date | 31 December 2021 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | December 2022 |
| Auditor (5) | Ernst & Young LLP |
| Case Summary / Press Notice |
Critical accounting estimates We queried whether ‘critical accounting estimate’ disclosures were presented to comply with the requirements in paragraph 125 of IAS 1, ‘Presentation of Financial Statements’ to disclose sources of estimation uncertainty with a significant risk of a material adjustment in the next year, or for some other purpose. The company confirmed that they were additional, voluntary disclosures and agreed to clarify and explain, in future annual reports and accounts, why this additional disclosure is given. Movements in balance sheet items We asked the company to provide additional information regarding certain balance sheet movements and to clarify whether the Strategic Report was sufficiently comprehensive without including these explanations. The company provided more detail on the movements and satisfactorily explained their exclusion from the Strategic Report on the basis of materiality. They agreed to include further detail on other non-current liabilities and how they interact with other balance sheet lines, alongside narrative of material changes or additions to provisions, where relevant, in future annual reports and accounts. |
| Entity | OSB GROUP PLC |
| Balance Sheet Date | 31 December 2021 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Limited |
| Quarter Published | December 2022 |
| Auditor (5) | Deloitte LLP |
| Case Summary / Press Notice | N/A |
| Entity | Pearson plc |
| Balance Sheet Date | 31 December 2021 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Limited |
| Quarter Published | December 2022 |
| Auditor (5) | KPMG LLP |
| Case Summary / Press Notice | N/A |
| Entity | Pendragon PLC |
| Balance Sheet Date | 31 December 2021 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Limited |
| Quarter Published | December 2022 |
| Auditor (5) | KPMG LLP |
| Case Summary / Press Notice | N/A |
| Entity | Persimmon Plc |
| Balance Sheet Date | 31 December 2021 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Limited |
| Quarter Published | December 2022 |
| Auditor (5) | Ernst & Young LLP |
| Case Summary / Press Notice | N/A |
| Entity | Pharos Energy plc |
| Balance Sheet Date | 31 December 2021 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | December 2022 |
| Auditor (5) | Deloitte LLP |
| Case Summary / Press Notice |
Interests in abandonment security funds We asked the company to explain the measurement basis of its interests in abandonment security funds. The company provided a satisfactory explanation and agreed to include an accounting policy in future reports and accounts to enable users to understand the accounting treatment applied. |
| Entity | Playtech plc |
| Balance Sheet Date | 31 December 2020 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | December 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Investments in structured agreements We asked the company to provide further information about its investments in structured agreements, as the judgements made by management when determining whether the company has control or significant influence over these entities were not clear. The company’s response prompted subsequent questions about the accounting treatment applied to these investments, which the company satisfactorily addressed. We welcomed the clearer explanations given in the company’s 2021 accounts of the background to the structured agreements and the judgements made about the classification of the equity call options, including how the directors concluded that the company does not have control over these entities but does have significant influence. The company’s response also prompted a follow-up question about how it had applied IFRS 15 ‘Revenue from Contracts with Customers’ to the income from structured agreement contracts, that is the ‘additional B2B services fee’. The company provided a satisfactory explanation and agreed to enhance its disclosures about this revenue in future annual reports and accounts. Sun Bingo contract In its 2020 accounts, the company disclosed prepaid costs relating to the Sun Bingo contract which, it explained, were recognised as an asset and released over the remaining term of the contract in line with the level of contract profitability. We asked the company for further information to help us better understand the accounting treatment applied. The company provided the information requested, which prompted a follow-up question about whether the directors considered applying IAS 38 ‘Intangible Assets’ to the contract. The company explained that the directors concluded that the nature of the arrangement did not give rise to any intangible assets. The company agreed to improve the disclosure in its 2021 annual report about the contract and to disclose the judgement made about recognition and measurement of the contract. Revenue recognition We asked the company for further information about the judgement made by the directors that the group is acting as an agent in its contracts for B2B royalty income. The company provided a satisfactory explanation and confirmed that the directors’ assessment of the indicators in paragraph B37 of IFRS 15, which led to the conclusion that the group is acting as an agent, will be included in the description of the judgement made in the 2021 and subsequent accounts. Non-current assets held for sale – Finalto We asked the company for further information about the impairment expense recognised after Finalto was classified as a disposal group held for sale. The company provided a satisfactory explanation of the circumstances that resulted in the recognition of this expense. Share-based payments The disclosures in the 2020 accounts indicated that the company may have established a practice of settling certain share-based payment awards in cash and may, therefore, have a present obligation to settle in cash. We asked the company to explain the accounting treatment applied to share options granted to employees that are settled in cash. The company explained that it did not apply the requirements in IFRS 2 ‘Share-based Payment’ for cash-settled transactions because the directors had concluded that the quantum of the liability was not a material amount. The company also explained that the accounting for these options would be reviewed when preparing the 2021 accounts. On this basis, we did not consider it proportionate to pursue the matter further. We also asked the company to provide a reconciliation from the credit to equity for the employee stock option plan, to the employee stock option plan expense. The company provided the requested reconciliation and explained that the liability for cash settlement had been settled by 31 December 2020 and was included in the cash flow statement in net cash from operating activities. Receivable for legal proceedings and disputes We asked the company for further information about the receivable for legal proceedings and disputes, including the circumstances resulting in its recognition and how and when the directors expected this amount to be recovered. The company provided a satisfactory explanation and agreed to disclose further information about this balance in the 2021 accounts. Tax The tax reconciliation in the 2020 accounts included a single reconciling item ‘Income tax on profits of subsidiary operations’, which is the tax charge for the year. We asked the company to explain how it intended to enhance the presentation of the tax reconciliation in future accounts to meet its purpose as set out in paragraph 84 of IAS 12 ‘Income Taxes’. The company provided a satisfactory explanation of the enhancements it will make to the disclosure of the tax expense and tax reconciliation in the 2021 accounts. We also asked the company to explain where certain tax-related items in the reconciliation between adjusted and actual results were reflected in the tax charge. The company provided the requested explanation. In closing this matter, we commented that users may appreciate a separate reconciliation from the adjusted tax expense to the IFRS tax charge. Parent company statement of cash flows We asked the company to explain the basis on which the directors concluded that presenting amounts advanced to group companies as a financing cash flow complied with IAS 7 ‘Statement of Cash Flows’. The company explained that advances received from and granted to related parties were presented net within the financing activities section of the parent company cash flow statement. In addition, due to an oversight, the advances received from group companies were not included in the disclosure of changes in liabilities arising from financing activities. The company explained that it would have corrected these items in the 2021 parent company accounts but the directors had decided to prepare such future accounts in accordance with FRS 101 ‘Reduced Disclosure Framework’, which does not require the presentation of a cash flow statement. On this basis, we did not consider it proportionate to pursue the matter further. |
| Entity | Post Office Limited |
| Balance Sheet Date | 28 March 2021 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | December 2022 |
| Auditor (5) | PricewaterhouseCoopers LLP |
| Case Summary / Press Notice |
Impairment of property, plant and equipment and right-of-use assets We asked for further information about the critical accounting judgement made by the company that the retail offering provided by the national network of branches as a whole is deemed to be one cash generating unit (‘CGU’) for the purpose of the impairment testing required by IAS 36, ‘Impairment of Assets’. We also asked for an explanation of the basis on which it was concluded that individual branch locations, or groups of locations, do not meet the definition of a CGU in IAS 36. The company explained that individual branch assets are immaterial and that the majority of the owned assets are central assets needed to support the functioning of the network as a whole. The company also explained that to meet the government’s access criteria, the network includes branches that would never be profitable and the Network Subsidy Payment received annually from government in recognition of this is not branch-specific. In closing the matter, we explained our expectation that the company should include a more detailed explanation of the factors considered in making this critical accounting judgement. Historical Matters related provisions The company disclosed that the effect of discounting provisions, which included the Historical Matters related provisions of £711 million, would be immaterial. IAS 37, ‘Provisions, Contingent Liabilities and Contingent Assets’, requires provisions to be discounted to the present value where the effect of the time value of money is material. In view of the significant amount of the provisions classified as non-current, we sought an explanation of the basis for this conclusion. The company explained that the cash flows were risk adjusted and, consequently, a risk-free rate was used to discount them. This risk-free rate was based on that of a government bond, which at the time was very low. The company also confirmed that the effect of the time value of money is assessed at each balance sheet date. |
| Entity | Prudential plc |
| Balance Sheet Date | 31 December 2021 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Limited |
| Quarter Published | December 2022 |
| Auditor (5) | KPMG LLP |
| Case Summary / Press Notice | N/A |
| Entity | PureTech Health plc |
| Balance Sheet Date | 31 December 2021 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Limited |
| Quarter Published | December 2022 |
| Auditor (5) | KPMG LLP |
| Case Summary / Press Notice | N/A |
| Entity | Reckitt Benckiser Plc |
| Balance Sheet Date | 31 December 2021 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Full |
| Quarter Published | December 2022 |
| Auditor (5) | KPMG LLP |
| Case Summary / Press Notice | N/A |
| Entity | Restore plc |
| Balance Sheet Date | 31 December 2021 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Limited |
| Quarter Published | December 2022 |
| Auditor (5) | PricewaterhouseCoopers LLP |
| Case Summary / Press Notice | N/A |