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 | Provident Financial plc |
|---|---|
| Balance Sheet Date | 31 December 2020 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | March 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
We sought further information about adjustments made by the company to its models to calculate expected credit losses. The company provided satisfactory explanations and agreed to enhance its disclosures by quantifying overlays applied to the expected credit loss models, distinguishing between in model and post model overlays. The company also agreed to include an explanation of the underlying modelling methodologies with a clear explanation of why the overlays are needed and, to the extent they exist, disclose material sensitivities to overlay amounts.
|
| Entity | Rubix Group Holdings Limited |
| Balance Sheet Date | 31 December 2020 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Limited |
| Quarter Published | March 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
This company was selected as part of our thematic review of streamlined energy and carbon reporting (‘SECR’) disclosures and, as such, only these disclosures were reviewed. Streamlined energy and carbon reporting We asked the company to explain why it had not satisfied one aspect of the SECR disclosure requirements, in relation to the disclosure of energy consumption. These requirements applied for the first time to the company’s 2020 annual report and accounts. The company explained why it did not include this information in the 2020 accounts and agreed to make the required disclosures in the 2021 and future annual reports and accounts. |
| Entity | Saga plc |
| Balance Sheet Date | 31 January 2021 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | March 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Cash flow hedges We asked the company to provide further information regarding the gains recognised through other comprehensive income in relation to a hedging instrument for the acquisition of two new ships, and also the accounting adopted on the acquisition of those ships. The company provided the information requested. Modification of lease terms We also asked for further explanation of the reduction in the cost of right of use assets, and the related reduction in depreciation, with respect to river cruise ships, described as the “effect of modification of lease terms”. The company confirmed that this related to the disposal of the right of use assets due to the termination of the associated leases, and that the loss arising on this lease termination was not material. Impairment review and useful economic life of cruise ships We asked the company to explain how the global transition to net zero, including any possible future changes in regulation or customer behaviour arising from this, had been taken into account in both determining the useful economic lives and residual values of cruise ships, and producing the cash flow forecasts used as the basis for the impairment review of the Spirit of Adventure. The company provided the information requested and undertook both to continue to monitor environmental developments and revise these estimates as and when required, and also to look to add further disclosure in its next annual report and accounts to explain how climate considerations have been factored into the impairment assessment of each ship. |
| Entity | Savills plc (3) |
| Balance Sheet Date | 31 December 2020 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | March 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Payments on business acquisitions contingent upon continuing employment We asked the company for more information on its accounting policies for, and disclosure of, contingent payments that are linked to continuing employment, which under paragraph 52(b) of IFRS 3, ‘Business Combinations’, are required to be accounted for separately from the acquisition accounting. The company satisfactorily explained its accounting policies and undertook to enhance its future disclosures in respect of payments linked to continuing employment. The company also identified that certain payments linked to continuing employment had been incorrectly classified as investing cash flows in the consolidated statement of cash flows for the year ended 31 December 2020. The company undertook to restate the comparative amounts in the 2021 accounts accordingly. 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. Provisions for professional indemnity claims We asked the company to clarify its accounting treatment for provisions for professional indemnity claims in excess of the self-insured element. The company undertook to present reimbursement assets separately in the balance sheet from the related liability in future accounts, as required under paragraph 53 of IAS 37, ‘Provisions, Contingent Liabilities and Contingent Assets’. The company noted that the effect on the amounts reported at 31 December 2020 is not quantitatively material and that consequently these amounts will not be restated in the 2021 accounts. The company also clarified that the provision was not considered to be an estimate that has a significant risk of resulting in a material adjustment to the carrying amount within the next financial year under paragraph 125 of IAS 1, ‘Presentation of Financial Statements’, and that it will reconsider its future disclosures accordingly. |
| Entity | Schroders plc |
| Balance Sheet Date | 31 December 2020 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | March 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Disclosure of unit-linked liabilities and related assets We asked the company to explain its basis for concluding that no further disclosures were required in respect of the assets backing unit-linked liabilities. The company explained that it does not consider it necessary to provide any further disclosures regarding the risks arising from these assets as these risks are borne by the life insurance policyholders and the group has no direct exposure. It agreed to expand its fair value hierarchy disclosures to include a breakdown of these assets by type. Fair value measurement We also asked for further details of the fair value measurements of financial assets and liabilities held at level 3 in the fair value hierarchy and the sensitivity of these measurements to changes in estimation inputs. The company explained that these balances are not homogeneous in nature, and consequently the valuations make use of different methodologies and assumptions. There are no individually significant assumptions or reasonably possible alternatives that would lead to a material change in fair value. The company agreed to disclose this information in future financial statements. |
| Entity | Serco Group plc |
| Balance Sheet Date | 31 December 2020 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | March 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Share repurchase programme We asked the company to explain the basis on which no liability had been recognised for the irrevocable instruction to repurchase shares announced in December 2020. The company explained that the contract was cancellable until the share buy-back period commenced, in January 2021 and, as such, no obligation existed at 31 December 2020. Modifications of contracts with customers We questioned the company’s accounting policy for the modifications of contracts with customers. The company acknowledged that the disclosed policy was not in accordance with the requirements of IFRS 15 and agreed to update it. The company also confirmed no contract modifications to which the incorrect policy might have been applied had occurred either during the year ended 31 December 2020 or in the six-month period to 30 June 2021. Other provisions We asked the company for further information about ‘other provisions’. The company provided the information requested and agreed to enhance the disclosures relating to the largest component of this balance, including the uncertainties associated with its timing and amount. Other payables We requested an analysis of items included within ‘other payables’ and, subsequently, sought clarification of the nature and uncertainties associated with claims related liabilities, which were a significant component of the ‘other payables’ balance. The company provided the information requested and agreed that, as there is some uncertainty over the timing of payment of the claims, classification of the claims related liabilities as a provision may be appropriate. The company explained it planned to record the reclassification from other payables to provisions as a current year reclassification in FY21, rather than as a prior period adjustment, as it did not consider the effect of the change to be material. We observed that some users might reasonably expect that a change in presentation of this size would be reflected by way of prior period restatement but did not consider it proportionate to pursue this judgement further; however, we did ask management to explain their judgement regarding the materiality of this adjustment in the disclosure accompanying the change in classification. |
| Entity | Severn Trent Plc |
| Balance Sheet Date | 30 March 2021 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Full |
| Quarter Published | March 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice | N/A |
| Entity | Sportech PLC |
| Balance Sheet Date | 31 December 2020 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | March 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Cash flow statement - classification of interest paid We asked for the company’s rationale for classifying interest paid on lease liabilities as arising from financing activities in its cash flow statement, while classifying bank interest within operating activities. The company acknowledged that all interest payments should be classified consistently in the cash flow statement. In future, it will classify bank interest as an outflow from financing activities. It will not reclassify the comparative amounts as it does not consider bank interest to be material. |
| Entity | Synthomer plc |
| Balance Sheet Date | 31 December 2020 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Limited |
| Quarter Published | March 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Provisions We asked the company to explain whether it had an obligation to decommission its coal-fired utility plant in the Czech Republic and to confirm the amount included in provisions for the associated expected outflows. The company clarified that the restructuring charge and provision included the estimated cost to meet the legal obligation to decommission the utility plant. The company explained that the amount was not material to the group, but acknowledged, with hindsight, that the disclosure would have been improved if it had stated that the restructuring charge and provision included the decommissioning costs of the utility plant. |
| Entity | Tesco Group PLC |
| Balance Sheet Date | 27 February 2021 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Full |
| Quarter Published | March 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice | N/A |
| Entity | The British Land Company PLC |
| Balance Sheet Date | 31 March 2021 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Full |
| Quarter Published | March 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice | N/A |
| Entity | The Henderson Smaller Companies Investment Trust |
| Balance Sheet Date | 31 May 2021 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Full |
| Quarter Published | March 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice | N/A |
| Entity | The Unite Group PLC |
| Balance Sheet Date | 30 June 2021 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | March 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Revenue earned from joint venture We asked the company to explain the basis for recognising only half of the performance fee revenue earned from its joint venture and to provide the related accounting entries. The company explained that it made an accounting policy choice to eliminate its share of the joint venture fee against revenue and provided satisfactory explanations. It undertook to enhance the related narrative disclosures in its 2021 annual report and accounts. |
| Entity | Trainline PLC |
| Balance Sheet Date | 28 February 2021 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Full |
| Quarter Published | March 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice | N/A |
| Entity | TT Electronics plc |
| Balance Sheet Date | 31 December 2020 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | March 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Classification of share-based payments In the light of certain share-based payment awards which were disclosed as settled in cash during the year, we asked the company to explain the basis for classifying its share-based payment schemes as equity-settled according to the criteria in paragraph 41 of IFRS 2 ‘Share-based Payment’. The company explained that the cash settlements were largely in respect of its legal duties regarding employees’ tax obligations related to the share-based payment schemes. It also explained that certain schemes gave the company the option to settle either in cash or in equity and that the balance of the cash settlements during the year comprised awards that had been settled directly in cash at the company’s option. We were satisfied with the company’s explanations, and asked the company to consider the implications of these cash settlements for the classification of future share-based payment awards. The company undertook to update its narrative disclosures to explain the basis on which it classifies its share-based payment transactions as equity-settled and to rename certain headings in its future annual reports and accounts. Deferred tax on provisions We asked the company to explain how it had calculated a deferred tax asset line item labelled ‘provisions’ of £7.6m in relation to the total balance sheet provisions of £7.5m. The company explained that the deferred tax amount was largely related to intercompany accruals, not IAS 37 ‘Provisions, contingent liabilities and contingent assets‘, and undertook to rename the deferred tax line item appropriately in its 2021 annual report and accounts. Deferred tax on cash flow hedging instruments We asked the company to explain why we were unable to identify a deferred tax liability in relation to the net asset recognised in respect of its cash flow hedging instruments. The company confirmed that a deferred tax liability should have been recognised and undertook to correct this prospectively in its future annual reports and accounts, since the effect on the 2020 financial statements was not material. |