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 | Murray Income Trust PLC (3) |
|---|---|
| Balance Sheet Date | 30 June 2021 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | June 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Classification of cash inflow in relation to asset purchase We questioned the company’s classification of a cash inflow of £40,248,000 associated with the acquisition of a pool of investment assets, satisfied by the issue of shares and assumption of debt, as an investing cash flow in the Statement of Cash Flows. As the transaction was not accounted for as a business combination, this cash inflow did not meet the definition of investing activities set out in paragraph 7.5(c) of FRS 102, ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’. The company undertook to restate the comparatives to the Statement of Cash Flows for the period ending 30 June 2022 to reclassify the cash inflow associated with the transaction as a financing inflow, in accordance with paragraph 7.6 of FRS 102. 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 | N Brown Group plc |
| Balance Sheet Date | 27 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 |
Securitisation of trade receivables We asked for details of the specific factors relevant to the conclusion that the company has control over the securitisation trust to support the consolidation of the securitisation trust under IFRS 10 ‘Consolidated Financial Statements’. The company’s response satisfactorily addressed the question we had raised and included a commitment to enhance its accounting policy to explain how the securitisation trust meets the requirement for consolidation under IFRS 10 in future annual reports. Parent company accounts: impairment of investment in subsidiaries We asked for further details of the impairment review undertaken in accordance with IAS 36 ‘Impairment of Assets’ to support the carrying value of investments in subsidiaries in the parent company accounts. The company clarified that the valuation in use calculation used for the Group impairment review also supports the carrying value of investments in subsidiaries in the parent company accounts. The company agreed to make this clearer within the parent company financial statement disclosures in future annual reports. Expected credit losses We asked for further details about post model adjustments that are made by management in the calculation of expected credit loss provisions. The company provided the information requested and agreed to include clearer disclosures of the nature and amount of post model adjustments, including details of inputs, assumptions and estimation techniques, in future annual reports if such adjustments are required. |
| Entity | NEXT plc (3) |
| 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 |
Cash flow statement The Chief Executive’s review disclosed that, during the year, a gain was recognised on sale and leaseback transactions in relation to the ‘portion’ of the assets that were not leased back and which were, in effect, disposed of. In view of this, we questioned why all the proceeds from sale and leaseback transactions were classified as financing activities in the cash flow statement. The company acknowledged that the proceeds from the sale of the portion of assets that were not leased back should have been classified as investing activities in the cash flow statement included in its 2021 accounts. While the company did not consider this to be material to its 2021 report and accounts, it considered it appropriate to restate the comparatives in its next report and accounts to reflect the requirements of IAS 7, ‘Statement of Cash Flows’, and to be consistent with the presentation of any subsequent sale and leaseback transactions. The company agreed to provide an explanation of the change in accordance with the requirements of IAS 8, ‘Accounting Policies, Changes in Accounting Estimates and Errors’. As the restatement affected a primary statement, we asked the company to disclose the fact that the matter had come to its attention as result of our enquiry. |
| Entity | Ninety One Plc |
| Balance Sheet Date | 31 March 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 | Oxford Biomedica plc (3) |
| 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 |
Revenue recognition We asked the company to describe its accounting policy for the capacity reservation fee referred to in its strategic report. The company provided this information and undertook to disclose the policy in its future accounts. We noted an inconsistency in amounts disclosed for contract assets between the disclosures about critical judgements and estimates, and the trade and other receivables note to the accounts. The company explained the inconsistency and undertook to improve the clarity of its disclosures in this area in future accounts. Operating EBITDA We requested further information about certain items in the reconciliation of operating EBITDA to operating loss as we were unable to trace these items to figures disclosed elsewhere in the accounts. The company provided the information requested and undertook to ensure, in future annual reports, that figures reported in the finance review could be agreed to amounts in the notes to the accounts. The company also undertook to amend its definition of operating EBITDA to make clear that this measure excluded share-based payment charges, except those charges deemed to be “cash related”. In closing this matter, we observed that we expected the disclosures to make clear the basis on which the company considered certain share-based payment charges to be cash-related items, and thus included in operating EBITDA. Taxation We sought an explanation for the movement in current tax assets as this was not clear from the accounts. The company provided the explanation requested, which prompted a follow-up question on the composition of the other tax receivable balance included within trade and other receivables. The company acknowledged that it had offset VAT payable against the other tax receivable balance and undertook to ensure such balances were appropriately classified as liabilities within trade and other payables in future accounts. As the company did not consider the misclassification of VAT payable to be material we did not consider it proportionate to pursue the matter further. Company cash flow statement We questioned why cash flows from a loan to subsidiary were classified as arising from financing, rather than investing, activities in the parent company’s cash flow statement. The company acknowledged that the amount should have been classified as an investing cash flow and undertook to correct this in its 2021 report and accounts, and to restate the comparatives. 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 | Purplebricks Group 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 |
Receivables factoring arrangement We asked for information about the company’s factoring of customer receivables, including the facilities committed and utilised, changes in fee rates and the treatment of receipts in the cash flow statement. The company provided the information requested and agreed to enhance its disclosures about the arrangement in future annual reports and accounts. Investment in associate We asked the company to explain its reclassification of an investment from joint venture to associate, and to provide its calculations of the changes both in the carrying amount, arising on additional investments by the other investor, and in the share of gains and losses recognised by the company. We also sought clarification of the basis on which the adjustments arising on reclassification had been recognised prospectively. The company provided us with satisfactory responses. |
| Entity | RBG Holdings 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 |
Accounting policy for legal claims against the company We questioned whether the company’s accounting policy for provisions was consistent with IAS 37, ‘Provisions, Contingent Liabilities and Contingent Assets’, because it implied that provisions for legal claims are offset against any expected insurance reimbursements. We also asked it to provide details of material legal claims, before considering any insurance reimbursements. The company explained that they did not believe that there were any material legal claims requiring recognition of a provision under IAS 37, and considered the prospect of any material settlement in respect of legal claims remote. They acknowledged that their disclosed accounting policy was not correct and agreed to revise it in future accounts to clarify that any liability and reimbursement asset are shown separately on the balance sheet. Impact of an historical business combination on the company’s provisions and related disclosures We closed our enquiry after the company explained that the acquisition specifically excluded assets and liabilities associated with the customer. |
| Entity | R.E.A. Holdings plc (3) |
| 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 |
Inconsistencies in reported amounts in total comprehensive income We asked the company to explain several inconsistencies between certain amounts recognised in total comprehensive income and those disclosed elsewhere in the primary statements or in the notes. The company acknowledged that there were errors in the amounts presented for: the tax credit in the income statement; deferred tax, actuarial gains/losses and foreign exchange in the statement of other comprehensive income; and equity attributable to non-controlling interests. The company agreed to restate the comparatives in its next annual report and accounts. As the restatements affected primary statements, we asked the company to disclose the fact that the matter had come to its attention as a result of our enquiry. Disclosure of covenants Although the company had disclosed the breach, and subsequent waiver of the breach, of certain loan covenants, it had not provided any explanation of the covenant terms or quantification of the headroom thresholds that were breached. The company agreed to our request that it should disclose more information about its loan covenant arrangements in future if there are instances of breaches or potential breaches of covenant terms. Obligations from tax disputes We asked the company to clarify the potential obligations to which it was exposed as a result of its ongoing tax disputes and how the obligations were reflected in the annual accounts. The company provided further explanation of the obligations and their accounting treatment, and agreed to provide clearer disclosures and quantification of the amounts in its 2021 annual report and accounts. Advance payment of taxation We requested further information about the balance reported as ‘Advance payment of taxation’ within trade and other receivables. The company provided further analysis of the balance and agreed to present the amount of the balance that related to corporate income tax as a separate line item in the balance sheet in the 2021 annual report, as required by IAS 1, ‘Presentation of Financial Statements’. It will also provide a clearer description of the amount remaining within trade and other receivables. Capitalisation of administrative expenses We asked for information about the type of costs that were included in the amounts described as capitalised from administrative expenses and how they met the criteria for capitalisation in accordance with IAS 16, ‘Property, plant and equipment’. The company satisfactorily explained that the costs involved were directly related to the supervision of its plantations and that the amount capitalised represented the proportion of those costs relating to its immature palm oil plantings. |
| Entity | Revolution Bars Group Plc |
| Balance Sheet Date | 3 July 2021 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | June 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Exceptional items We asked the company to explain why exceptional gains arising from a number of lease surrenders were treated as finance exceptionals in FY20 and as operating exceptionals in FY21. The company explained the differing circumstances for the inconsistent presentation. While we were not fully persuaded by the company’s arguments, we did not consider it proportionate to pursue this matter further since the company envisages that future gains and losses will be presented in operating exceptionals. Carrying value of property, plant and equipment and right of use assets We sought to understand better why management had included revenue uplifts for refurbishments yet to be completed within the cash flows used to determine the value in use of a cash generating unit. We also queried the apparent inconsistency between the five-year refurbishment cycle referred to in the impairment disclosures and the useful economic lives over which short leasehold premises and improvements are depreciated. Management provided a satisfactory explanation and undertook to improve relevant disclosures in their FY22 accounts. Supplier rebates The narrative within the Audit Committee Report and the Audit Report suggested that the measurement of supplier rebates may be an area involving significant estimation uncertainty. We asked the company to explain whether significant estimation uncertainty arose in respect of the measurement of supplier rebates as no IAS 1 ‘Presentation of Financial Statements’ disclosures were provided in respect of them. The company provided a satisfactory explanation as to why the measurement of supplier rebates did not involve significant estimation uncertainty and undertook to explain or remove the inconsistency in this area. |
| Entity | Schroder Asia Pacific Fund 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 | Sirius Real Estate Limited |
| 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 |
Service charges We asked for further information about the method used to recognise revenue and the nature and extent of variable consideration in relation to service charge income. The company’s response satisfactorily addressed the questions we had raised. We emphasised that there should be a clear distinction between the disclosures required under paragraph 125 of IAS 1, where there is significant risk of a material adjustment in the following year, and voluntary disclosures of other uncertainties, such as those carrying lower risk, having smaller impact or crystallising over a longer timeframe. |
| Entity | Southern Water Services Limited |
| Balance Sheet Date | 31 March 2021 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Limited |
| Quarter Published | June 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Provision for the Environment Agency investigation The company was subject to an investigation by the Environment Agency into permit breaches between 2010 and 2015 which resulted in the company being fined £90m shortly after the March 2021 accounts were signed. We asked the company how the directors had concluded that a provision of £1m, reflecting the minimum amount and an allowance for legal costs, was sufficient at 31 March 2021, given that the company had pleaded guilty to the charges. The company explained that due to the scale of the matter and the absence of a legal precedent, the directors had concluded that it was not possible to determine a range of possible outcomes or make a reliable estimate of the potential fine. In closing this matter, and as a result of our observations, the company agreed to enhance its disclosure of estimation uncertainty in relation to provisions and contingent liabilities. Revenue recognition – services offered to property developers We noted diversity in practice among the water utility companies regarding the revenue recognition for the services offered to property developers, such as new connections to the water and wastewater networks, adoption of assets contributed by developers at nil consideration and network infrastructure charges, which reflect the costs incurred in network reinforcement. Some companies are deferring the recognition of revenue in relation to some or all of the income streams in question, mainly over the useful economic life of the related assets; whereas other companies are recognising such revenue upfront – i.e. upon completion of the connection or upon the adoption of an infrastructure asset from the developer. We asked the company to explain its rationale for the timing at which it recognised revenue on such services. In particular, we challenged the appropriateness of recognising revenue at the time of connection or upon adoption of contributed assets. The company provided information on the arrangements, the judgements applied and the rationale for the timing of revenue recognition. We accepted the company’s treatment given the lack of specific guidance on the accounting for these types of transactions, the judgement involved and the diversity in accounting practices applied. The company undertook to improve its disclosure of the accounting policies in relation to these services. It also undertook to disclose a significant judgement involved in deciding that the services offered to the developers are deemed to be distinct from the ongoing provision of water and wastewater services. |
| Entity | Standard Chartered Bank 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 flows relating to internally generated intangible assets We asked the company to provide further information on the presentation of cash flows relating to internally generated intangible assets in the cash flow statement. The company explained that such cash flows had been incorrectly included in the change in operating assets instead of within cash flows arising from investing activities. The company undertook to correct this in subsequent annual reports and accounts, and to add further explanation of the difference in presentation for comparative periods in the 2021 annual report and accounts. Cash flows in respect of leases We asked the company to clarify what was included in the amounts in the cash flow statement for the purchase of property, plant and equipment, specifically lease assets which do not require the use of cash or cash equivalents. The company confirmed that additions to lease assets were incorrectly included in the cash flows from investing activities. The company undertook to exclude these amounts from the cash flow statement in subsequent annual reports and accounts. |
| Entity | TBC Bank Group 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 |
Expected credit losses We asked the company to provide further information in respect of the post-model adjustments made by management in the calculation of expected credit loss provisions for the year ended 31 December 2020. The company responded satisfactorily and enhanced the disclosure to include both qualitative and quantitative analysis of such adjustments in the annual report and accounts for the year ended 31 December 2021. |
| Entity | The Restaurant Group Plc |
| Balance Sheet Date | 27 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 |
Revenue recognition We asked the company for further information about ‘upfront initial site and territory fees' and for an explanation of the basis for recognising these at a point in time. The company explained that these amounts are immaterial for the period under review, and are expected to continue to be immaterial. The accounting policy in relation to these fees will be removed from the financial statements. Capitalised right of use asset depreciation The company enters into leases for restaurant sites which allow it to fit out the sites in advance of their use. We asked the company for an explanation of the basis on which the related right of use asset depreciation was capitalised for such sites. The company explained that these amounts related to the development of sites in Manchester Airport. The right of use asset depreciation was capitalised as the leases were viewed as a cost of bringing the sites to the condition necessary for operation. However, IAS 16, ‘Property, plant and equipment’ requires that the cost of abnormal amounts of wasted material, labour, or other resources is not included in the cost of the asset. The company reconsidered its accounting and acknowledged that the amounts capitalised during the interruption to the fit out, due to the pandemic, should have been expensed as abnormal wastage. 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. Impairment - lease term assumptions We asked the company to explain whether impairment reviews for any cash generating units (CGUs) included cash flow forecasts for periods longer than the CGU’s property leases. We were satisfied by the company’s explanation of the basis on which it complied with IAS 36, ‘Impairment of Assets’. We were also satisfied with the company’s explanation that the matter was not a key assumption which would require further disclosure, for any individual CGU. |