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 | Frontier Developments plc |
|---|---|
| Balance Sheet Date | 31 May 2021 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | June 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Unrecognised tax losses We asked the company to explain the increase in its unrecognised tax losses and how the amounts relate to the tax rate reconciliation. We also asked it to explain the basis on which it concluded that the losses did not qualify for recognition as a deferred tax asset. We were satisfied with the company’s explanations and closed our enquiries. In closing the matter, we explained that we expect the company to provide sufficient information in its future accounts to enable users to understand how material movements in unrecognised tax losses are supported by amounts reflected in the effective tax rate reconciliation. Streamlined Energy and Carbon Reporting We asked the company to explain why its SECR disclosures did not include its energy consumption information. We closed our query after the company gave an undertaking to provide the information in its future reports. |
| Entity | GCP Infrastructure Investments Limited |
| Balance Sheet Date | 30 September 2021 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Full |
| Quarter Published | June 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice | N/A |
| Entity | Hansard Global plc |
| Balance Sheet Date | 30 June 2021 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Full |
| Quarter Published | June 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice | N/A |
| Entity | Hargreaves Lansdown |
| Balance Sheet Date | 30 June 2021 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Limited |
| Quarter Published | June 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Potential Litigation We requested further information about the accounting implications for potential litigation against the company in respect of the LF Equity Income Fund (formerly Woodford Equity Income Fund) which had been reported in the media. The company explained that a pre-action letter had been received from a legal firm in March 2021. The company clarified that in June 2021, it had issued a letter in response which rejected all the claims made for lack of a substantive basis of claim. As at the time of the company’s clarification, it confirmed that there had been no response to the company’s letter since it was issued, and that no formal litigation or group legal action against the company had commenced as at the date of issuing the 2021 annual report and accounts, or since. The company explained with reference to the requirements of IAS 37 'Provisions, Contingent Liabilities and Contingent Assets' that no provision had been recognised nor disclosure provided relating to the matter, as it had concluded that the possibility of a material outflow was remote. |
| Entity | Helical plc (3) |
| Balance Sheet Date | 31 March 2021 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | June 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Amounts owed by subsidiary undertakings We asked the company to explain the rationale for classifying amounts due from subsidiary undertakings as current assets in the parent company balance sheet. The company acknowledged that it did not expect the amounts to be settled within 12 months and that the amounts should be classified as non-current assets. The company agreed to restate the comparatives in its next 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. |
| Entity | HSS Hire Group plc (3) |
| Balance Sheet Date | 26 December 2020 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | June 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Identification of cash-generating units We requested more information on the identification of cash-generating units for the purpose of assessing impairment of property, plant and equipment and right of use assets. The company provided satisfactory responses to our enquiries. Onerous property cost and dilapidations provisions We asked the company to explain the reasons for a material change in the level of property-related provisions between the 2020 year-end and the 2021 interim reporting date, and hence the basis on which it was satisfied that the provisions were measured at the best estimate of the expenditure required to settle the present obligation under paragraph 36 of IAS 37, ‘Provisions, Contingent Liabilities and Contingent Assets’. The company explained that this was due to the successful negotiation of the early surrender of property leases in the first half of 2021 that had not been anticipated at the time the 2020 year-end accounts were prepared. We questioned the extent of the sensitivity disclosures provided under paragraph 129 of IAS 1 ‘Presentation of Financial Statements’, in relation to property-related provisions, and the company undertook to include additional disclosure to the extent it is relevant and material in the future. We also encouraged the company to improve the clarity of the disclosure of material components of exceptional onerous property costs and credits in future financial statements. Impairment of financial assets We asked the company to explain its rationale for not presenting material impairment losses in relation to financial assets on the face of the consolidated income statement as required by paragraph 82(ba) of IAS 1. The company agreed to disclose this information in future financial statements to the extent material, and agreed to restate the 2020 comparatives to the 2021 income statement accordingly. As the restatement 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 | Ideagen Plc |
| Balance Sheet Date | 30 April 2021 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | June 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Income taxes We asked the company to provide further information about its disclosures in respect of current and deferred tax on share-based payments. The company acknowledged that a current tax credit posted through other comprehensive income should have been credited directly to equity and agreed to change its treatment of such amounts prospectively. The company also agreed to ensure that the deferred tax entries recorded in the income statement and equity, and the movements in the gross deferred tax asset and gross deferred tax liability, could be clearly identified. |
| Entity | Imperial Brands PLC |
| Balance Sheet Date | 30 September 2021 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Full |
| Quarter Published | June 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice | N/A |
| Entity | IWG plc |
| Balance Sheet Date | 31 December 2020 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | June 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Cash flow statement We had written to the company previously in relation to its 2019 report and accounts, as part of our thematic review related to the application of IFRS 16 ‘Leases’. As a result of that enquiry, the company agreed to make certain restatements to its group cash flow statement. Further information about that enquiry is provided in the case summary published in June 2021. However, our review of the changes made to company’s 2020 annual report and accounts identified an additional £204.1m prior year adjustment to the ‘Increase in trade and other payables’ line, which reduced cash flows from operating activities and increased cash flows from financing activities by this amount. We queried the basis for the additional adjustment. The company explained that this related to a correction of an error in the calculation of working capital movements, which had been identified during the restatement process. Share repurchases The market announcement dated 3 March stated that the company entered into certain irrevocable arrangements for own share repurchases. However, we could not identify a corresponding financial liability in the annual report and accounts, which we queried. The company explained that the arrangement was suspended and modified later in the year and was now discretionary. Consequently, it was considered appropriate to derecognise the remaining financial liability. Liquidity risk We queried the company’s basis for conclusion that its short-term lease liabilities, which will be settled in cash, did not give rise to a liquidity risk. The company agreed to revise the relevant disclosure in its future annual report and accounts. Alternative Performance Measures (‘APMs’) We requested reconciliations between a number of APMs and their IFRS equivalents. We also questioned the methodology applied in identifying Covid-19 related adjustments and how the company intended to track any future reversals of such items. The company provided us with the requested information and undertook to enhance the relevant disclosures in the future. Master franchise agreements Sales of various country operations ‘through the signing of franchise agreements’ resulted in total gains of £351.4m in the comparative period. We queried the extent to which there were any outstanding performance obligations arising from these transactions, and whether this should have led to deferral of any part of the gains. The company provided us with a satisfactory response. |
| Entity | JD Sports Fashion Plc |
| Balance Sheet Date | 30 January 2021 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | June 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Non-controlling interests (NCIs) We asked the company to clarify its accounting policy for put and call options over NCIs. We also requested further information about subsidiaries with significant NCIs. The company agreed to amend the accounting policy disclosure relating to call options and to make it clear in its future reporting that the corresponding entry on initial recognition of a put option liability is to ‘other equity’. We were satisfied by the company’s explanation of its ownership interests and how it can direct relevant activities of subsidiaries. The company agreed to correct disclosure about the company’s interest in Iberian Sports Retail Group SL in its future annual report and accounts. Intangible assets We asked for an explanation of an apparent inconsistency in the assumed useful lives of fascia names at initial recognition. The company confirmed that the initial recognition amounts had been estimated using a finite useful economic life and agreed to correct the disclosure. We were satisfied by the company’s response relating to impairment testing of fascia names. Leases We questioned amounts in respect of leases disclosed as due within one year, current lease liabilities and amounts paid during the period. The company provided the requested information and agreed to provide a clearer comprehensive disclosure of lease cash flows, including undiscounted contractual cash flows in its future maturity analysis. Net debt to equity ratio We asked the company to explain its net debt to equity ratio. The company identified an error in its calculation which it agreed to correct and to disclose the underlying computation in its next annual report and accounts. Operating segments We asked the company how it had determined its operating segments and whether smaller segments had been aggregated. The company explained that it had aggregated several businesses into the ‘Sports Fashion’ segment, based on similarities of products, customer demographics and economic characteristics. It agreed to disclose the factors used to identify reportable segments and the judgements made in applying the aggregation criteria in paragraph 12 of IFRS 8, ‘Operating Segments’ in its future annual report and accounts. The company also explained that the Footasylum business was included within the ‘Other Sports Fashion Fascias’ operating segment for reporting to the Chief Operating Decision Maker and aggregated into the ‘Sports Fashion’ segment, having similar characteristics to the ‘JD’ fascia. The company agreed to a provide a fuller description of the key factors that influenced the directors’ determination that the company had control over Footasylum and to appropriately disclose all related key factors and judgements in respect of accounting for Footasylum as ‘held for sale’ at 29 January 2022. Corporate governance report As part of the FRC’s non-statutory monitoring of reporting against the 2018 UK Corporate Governance Code, we invited the company to comment on our observations on its corporate governance report. It provided an explanation of its approach to these matters, noting that information elsewhere in the annual report was intended to communicate, for example, the company’s purpose and its process to identify, evaluate and manage risks. The company also identified improvements to be made in its future reporting, which we welcomed. |
| Entity | J D Wetherspoon plc |
| Balance Sheet Date | 25 July 2021 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Full |
| Quarter Published | June 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice | N/A |
| Entity | LondonMetric Property Plc |
| Balance Sheet Date | 30 June 2021 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Full |
| Quarter Published | June 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice | N/A |
| Entity | Mediclinic International plc |
| Balance Sheet Date | 31 March 2021 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | June 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Defined benefit pension schemes We asked the company for more information on the basis of recognition of a defined benefit pension scheme surplus in relation to certain of its Swiss pension schemes under IFRIC Interpretation 14, ‘IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction’. The company satisfactorily explained that the recoverability of the surplus was assessed by reference to the present value of economic benefits available from reductions in future contributions, having taken into account the minimum funding requirements under Swiss pension law. The company undertook to update its accounting policy wording in relation to unrecognised actuarial gains and losses and past service costs for consistency with the current version of IAS 19, ‘Employee Benefits’. Tariff risk provisions and variable consideration accruals We asked the company to explain the classification of tariff adjustments as provisions rather than contract liabilities in the balance sheet, and for more information on contract liabilities in relation to variable consideration included in other payables and accrued expenses. The company satisfactorily explained that the tariff risk provision comprises variable consideration refund liabilities in respect of its Swiss operations. Due to the particular level of estimation uncertainty as regards timing and/or amount, it has judged that presentation within provisions is appropriate although the provision is outside the scope of IAS 37, ‘Provisions, Contingent Liabilities and Contingent Assets’. The company undertook to clarify the refund liability nature of the tariff risk provision in future financial statements. The company also undertook to disclose additional information in future financial statements, to the extent material, in relation to the separate amount of variable consideration refund liabilities included in other payables and accrued expenses. Alternative performance measures (‘APMs’) We questioned various aspects of the company’s disclosure of APMs in accordance with the European Securities and Markets Authority (‘ESMA’) ‘Guidelines on Alternative Performance Measures’, including labelling, consistency, reconciliations, and prominence. The company undertook to consider the recommendations of the FRC Thematic Review on APMs, published in October 2021, in preparing its 2022 annual report. The company agreed to include the reconciliations of APMs to IFRS measures, previously presented in the company’s separate results announcements, in future annual reports and to include the tax effect of adjustments made to IFRS profit in the reconciliations. The company also undertook to label and define APMs more clearly, to provide an explanation of the basis of calculation of constant currency measures, and to present comparable statutory measures for each APM. |
| Entity | Monzo Bank Limited |
| Balance Sheet Date | 28 February 2021 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | June 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Interest income in respect of personal loans We asked the company to explain an inconsistency between the auditor’s report, which stated that interest income in respect of personal loans was determined using a simple interest rate method, and the accounting policy, which stated an effective interest rate (‘EIR’) method was used. Paragraph 5.4.1 of IFRS 9 ‘Financial Instruments’ requires interest income to be calculated using the EIR method. The company explained that interest income in respect of personal loans is determined using the simple interest rate method as a proxy for the EIR method given the business does not charge fees, premiums or apply discounts to their products. The company has assessed that the difference between the two methods is immaterial as the lack of fees does not cause the two methods to deviate when applying either a contractual or expected life. Going forward, we would expect this assessment to be repeated each year until such time as the company adopts an effective interest rate model. |
| Entity | Mulberry Group plc |
| Balance Sheet Date | 27 March 2021 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | June 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Leases The company’s accounting policy in relation to its leases assumed that in the event that leases include a break clause, it will be exercised at the first available opportunity. We asked the company to explain whether this assumption was consistent with the requirements of IFRS 16 ‘Leases’, whereby the exercise of a break option should be assumed only if it is considered to be reasonably certain. The company provided a satisfactory explanation and agreed to clarify, in its 2022 accounts, that the leases with a break clause would be evaluated on a case-by-case basis. The company agreed to enhance the disclosure of potential future cash outflows arising from break clauses. The company also undertook to improve its disclosure of the treatment of lease extensions in determining the forecast period when calculating value-in-use for the right-of-use assets cash generating units. We also asked the company for a reconciliation of the movements in the lease liabilities. The company provided this analysis and undertook to enhance the disclosure by separately disclosing material components, such as disposals and rent concessions. |