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 | Liontrust Asset Management PLC |
|---|---|
| Balance Sheet Date | 31 March 2021 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | September 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Accounting for share based payments We asked the company to clarify some of the amounts recognised in the financial statements relating to share based payments as it was not clear from the disclosures how the amounts had arisen. We also asked for an explanation as to how the company accounted for such payments. The company provided satisfactory explanations and undertook to enhance its disclosures of share-based payments in future annual reports. As a result of our review, the company identified that it had incorrectly classified some amounts in the Consolidated Statement of Comprehensive Income, the Consolidated Cash Flow Statement and the Consolidated Statement of Changes in Equity. The company concluded that these misclassifications did not have a material impact on the financial statements and undertook to ensure that amounts were correctly classified in future financial statements. |
| Entity | Melrose Industries Plc |
| Balance Sheet Date | 31 December 2021 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Full |
| Quarter Published | September 2022 |
| Auditor (5) | Deloitte LLP |
| Case Summary / Press Notice | N/A |
| Entity | Mitchells & Butlers plc |
| Balance Sheet Date | 25 September 2021 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | September 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Revaluation policy We queried whether the reversal of past revaluation deficits recognised in the income statement during the year related to the same individual assets that gave rise to the original impairment. The company confirmed that the reversals were against the individual assets that gave rise to the initial impairment in line with the requirements of paragraph 39 of IAS 16, ‘Property, Plant and Equipment.’ The company agreed to review their disclosures and provide further explanation, where relevant, in their 2022 annual report and accounts. |
| Entity | Mode Global Holdings Plc (3) |
| Balance Sheet Date | 31 December 2020 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | September 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Convertible loan notes We asked the company for further information about why the initial $USD consideration for the convertible loan notes had been allocated to both liability and equity components, as we would not expect a convertible bond denominated in a foreign currency to have an equity component. We also questioned why a gain was recognised on the settlement of the convertible loan notes. The company provided an explanation of the terms of the convertible loan notes and stated that following further review of the matter the company had determined that the convertible loan notes should have been recognised as a liability in full, with no gain recognised on settlement. The company agreed to restate the comparative period in its 2021 Annual Report and Accounts for this error. 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. |
| Entity | Mondi plc |
| Balance Sheet Date | 31 December 2021 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Limited |
| Quarter Published | September 2022 |
| Auditor (5) | PricewaterhouseCoopers LLP |
| Case Summary / Press Notice | N/A |
| Entity | Numis Corporation Plc |
| Balance Sheet Date | 30 September 2021 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Full |
| Quarter Published | September 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice | N/A |
| Entity | On the Beach Group plc (3) |
| Balance Sheet Date | 30 September 2021 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | September 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Disclosure of engagement with regulators We questioned the disclosure in the Audit Committee Report that referred to an FRC Corporate Reporting Review (CRR) team review of the 2020 Annual Report. The company confirmed that its correspondence with the FRC in the year ended 30 September 2021 in fact related to a review of the company’s 2020 audit by the FRC’s Audit Quality Review (AQR) team. We also drew the company’s attention to the FRC Guidance on Audit Committees, which states that when disclosing the fact that a company’s audit has been reviewed by the AQR team, companies should not disclose the audit quality category. The company undertook to publish a correction its 2022 Annual Report to clarify the nature of its correspondence with the FRC in the year ended 30 September 2021 and to confirm that the CRR team did not make any assessment as to the quality of the disclosures given in the 2020 Annual Report and Accounts. Deferred tax asset classification and disclosure We challenged the classification of a material net deferred tax asset as a current asset in the balance sheet. The company undertook to restate the comparative balance sheet in its 2022 Annual Report and Accounts, to present deferred tax as non-current, as required by paragraph 56 of IAS 1, ‘Presentation of Financial Statements’. The company agreed to disclose the fact that the matter had come to its attention as a result of our enquiry. We asked the company to provide more information on the nature of the evidence supporting the recognition of a net deferred tax asset, given that the company suffered a loss in both the current and preceding financial years. The company satisfactorily responded to our enquiries and, should the balance remain material, we encouraged the inclusion of more company-specific disclosure in future reporting, in accordance with the 2019 ESMA public statement ‘Considerations on recognition of deferred tax assets arising from the carry-forward of unused tax losses’. We also enquired whether the company considered the measurement of the deferred tax asset to be a major source of estimation uncertainty that has a significant risk of resulting in a material adjustment within the next financial year, as set out in paragraph 125 of IAS 1. The company clarified that it did not consider there to be a significant risk of a material adjustment within the next financial year, and undertook to enhance its future disclosures under paragraph 122 of IAS 1 in relation to the critical judgements made in relation to the expected timing of recovery of the deferred tax asset. |
| Entity | Paragon Banking Group PLC |
| Balance Sheet Date | 30 September 2021 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Full |
| Quarter Published | September 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice | N/A |
| Entity | Reach plc |
| Balance Sheet Date | 27 December 2020 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Limited |
| Quarter Published | September 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Provision for historical legal issues We requested information about the method used to determine the amount recognised as a provision for historical legal issues as of 27 December 2020 and asked why a range of potential outcomes relating to the provision was not disclosed. The company provided information about the method used and agreed to make improvements to the disclosures for the provision for historical legal issues, which included a commitment to disclose a range of outcomes for the provision in its 2021 annual report and accounts. We asked for further information about the company’s measurement of, and the uncertainties affecting the provision as of 26 December 2021 as well as of 27 December 2020. The company provided satisfactory explanations, which included details about the assumptions and judgements made in determining the amounts recognised for the different parts of the provision between known claims, potential future claims and common court costs. In closing the matter, we acknowledged the improvements the company had made to the disclosures in 2021 and encouraged the company to continue to assess the level of disclosure required to explain the uncertainties, judgements and assumptions made which affect the provision and contingent liability at each reporting date and update the disclosure accordingly, to the extent that the matter remains relevant. |
| Entity | Spirax-Sarco Engineering plc |
| Balance Sheet Date | 31 December 2021 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | September 2022 |
| Auditor (5) | Deloitte LLP |
| Case Summary / Press Notice |
We asked the company to clarify its use of a cash flow forecasting period longer than five years for estimating the value in use of the Electric Thermal Solutions (‘ETS’) group of cash generating units. The company explained that it anticipated growth in the period to 2030 in excess of the long-run growth rate used to estimate a terminal value, attributable to demand for its products in customers’ publicised decarbonisation initiatives. Accordingly, a forecasting period to 2030 had been adopted in 2020 but inadvertently disclosed in 2021 as still covering ten years. The company agreed to enhance its disclosure of key assumptions to clarify both the link to decarbonisation commitments within the market in which ETS operates and the year-on-year reduction in the forecasting period. We also encouraged disclosure of the significance of the judgement made over the forecasting period and of management’s past experience of forecasting reliably over periods greater than five years.
|
| Entity | Supply@ME Capital Plc |
| Balance Sheet Date | 31 December 2020 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | September 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Accounting for an inventory monetisation transaction We observed that the company had claimed in various regulatory documents that it provided a platform for client companies (“clients”) to generate cashflows via a non-credit approach and without incurring debt. We questioned the basis on which this statement had been made as it was not clear, based on other details the company had publicly disclosed, how such an outcome would be achieved by a client. Whilst the company attempted to explain the basis on which it had made the statement, we expressed reservations that the claimed accounting treatment for a client was appropriate when reporting under International Financial Reporting Standards. We did not pursue this matter further given that at the time of the enquiry, an inventory monetisation transaction had yet to be facilitated, but we were not persuaded by the company’s explanations. Revenue recognition We asked the company to explain how it had determined that it was appropriate to recognise revenue in the period for due diligence services provided to potential clients. We asked what the company’s performance obligations were in relation to these services and to clarify whether this revenue came from a contract with a related party. The company explained that it had concluded that the provision of due diligence services comprised a distinct performance obligation under IFRS 15 ‘Revenue from Contracts with Customers’, and that this provision resulted in a beneficial service to the prospective clients; it was on this basis that the revenue had been recognised. The company acknowledged that in reaching this conclusion it had made significant judgements and agreed to disclose these judgements in future annual reports. The company also clarified that the revenue was from a related party and would disclose this fact in future annual reports. Serious loss of capital We noted that the net assets of the company were less than half of its called-up shared capital which, under section 656 of the Companies Act 2006 (the “Act”), constitutes a serious loss of capital. We asked whether the company had called a general meeting, as required by the Act, to consider steps to deal with the situation. The company called such a meeting on 30 December 2021. Deferred taxation We questioned why a deferred tax asset had been recognised at 31 December 2020. The company explained that the asset arose from deferred revenue that had been recognised as a liability in the balance sheet which had not yet been taxed. The company agreed to provide the disclosures required by IAS 12 ‘Income Taxes’ in respect of such balances in future annual reports, and undertook to present deferred tax assets as non-current assets in the balance sheet. |
| Entity | The Renewables Infrastructure Group Limited |
| Balance Sheet Date | 31 December 2021 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Full |
| Quarter Published | September 2022 |
| Auditor (5) | Deloitte LLP |
| Case Summary / Press Notice | N/A |
| Entity | Tullow Oil plc |
| Balance Sheet Date | 31 December 2021 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Limited |
| Quarter Published | September 2022 |
| Auditor (5) | Ernst & Young LLP |
| Case Summary / Press Notice | N/A |
| Entity | Union Arch Properties PLC |
| Balance Sheet Date | 31 March 2021 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | September 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Strategic report business review We challenged the company’s business review disclosures under s414C of the Companies Act 2006. We specifically questioned the lack of company-specific discussion of the development and performance of the business, and its position at the reporting date, and the extent to which the directors considered the business review to be ‘fair, balanced and comprehensive’. We also asked the company to provide an overview of the nature and number of investment properties and properties held for resale classified as stock in the balance sheet, together with an explanation as to why no changes in the respective carrying amounts had arisen in the year. The company provided the requested information and undertook to review the key performance indicators disclosed, and to provide more company-specific discussion of the nature and performance of the investment property and trading property portfolio in future strategic reports. We highlighted that the strategic report disclosure should be sufficient for a reader to be able to understand the basis for any movement (or lack of movement) in the property valuations in the period. Investment property We asked the company to clarify the accounting policy applied in relation to investment properties and whether their valuation is considered to be a key source of estimation uncertainty under paragraph 8.7 of FRS 102, ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’. We also asked the company to provide the valuation disclosures required by paragraph 16.10 of FRS 102 and Schedule 1 to Statutory Instrument 2008 No. 410, ‘The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008’, (‘SI 2008/410’). The company confirmed that investment properties are measured at fair value at each reporting date, as required by paragraph 16.7 of FRS 102, and that their valuation is considered to be a key source of estimation uncertainty. The company agreed to include the required disclosures in future financial statements. We also asked the company to disclose information in relation to leases entered into, as required by paragraph 20.30 of FRS 102, and to include an accounting policy in respect of lease income, in future financial statements, which the company committed to do. Deferred tax We requested more information on the nature and calculation of the company’s deferred tax liability. The company explained that this relates to fair value adjustments on properties held for resale acquired in past business combinations, classified as stock, and satisfactorily explained the basis of calculation of the deferred tax liability. The company undertook to clarify the related disclosures in future financial statements in this respect. Borrowings We asked the company to provide the total carrying amount of inventories (stock) pledged as security for liabilities as required to be disclosed under paragraph 13.22(e) of FRS 102, as well as the disclosures in relation to the terms of borrowings required under section 11 of FRS 102 and Schedule 1 to SI 2008/410. The company provided these disclosures and agreed to include them in future financial statements, to the extent they are material. |
| Entity | Victoria PLC |
| Balance Sheet Date | 3 April 2021 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | September 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Share buy-back The accounts disclosed that during the year a share buy-back took place. The parent company’s last audited accounts showed accumulated losses, in which case the Companies Act 2006 requires interim accounts to be delivered to the Registrar of Companies before a distribution is made. We noted that the interim accounts were included on the Companies House record for the parent company after the date of the share buy-back. In view of this, we asked for details of how the company had complied with the requirements of the Companies Act 2006. The company explained that it had delivered interim accounts before the share buy-back but that Companies House did not initially accept the document as the Registrar had not been able to capture an electronic image of acceptable quality. As the interim accounts were not accepted by Companies House until after the date of the share buyback, the company agreed to obtain legal advice regarding the lawfulness of the share buy-back. As this is a primarily a legal matter, on which the company agreed to obtain legal advice, we closed our enquiry. |