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 FRC's Operating Procedures, for Corporate Reporting Review, 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 | 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. |
| Entity | Town Centre Securities 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 | Vertu Motors plc |
| 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 |
Accounting for customer contracts that contain repurchase obligations The inventory accounting policy explained that the company’s balance sheet includes inventory and a corresponding liability in connection with certain vehicle sales contracts that contain obligations to repurchase the vehicles at future dates. We asked the company to quantify the financial impact of the arrangements on its accounts, and to explain how its accounting policy was consistent with IFRS 15, ‘Revenue from Contracts with Customers’. The company explained that these vehicles had been accounted for as financing arrangements in accordance with paragraphs B66(b) and B68 of IFRS 15. However, it also explained that its FY2021 revenue and cost of sales incorrectly included offsetting amounts of £7,899k in relation to the contracts, and agreed to correct its accounting treatment in future accounts. Inventory recognition – interest-bearing consignment vehicles The inventory accounting policy highlighted that the company recognises any unsold consignment vehicles in inventory when manufacturers start charging interest on such vehicles. We asked the company to explain how it concluded that the date at which it started accruing interest coincided with the date that control transferred to the company. The company satisfactorily explained how its treatment was consistent with the indicators of control in IFRS 15. In closing the matter, we recommended that the company considers enhancing its accounting policy to help users understand how the company identified the point at which control was transferred. Revenue recognition – customer contracts containing multiple elements We asked the company to explain the nature of the ‘bundled products’ mentioned in its disclosures, and to explain how it had met IFRS 15 disclosure requirements in relation to significant accounting judgements, performance obligations and the methods, inputs and assumptions used to allocate transaction prices to performance obligations. The company provided satisfactory explanations, as well as an undertaking to disclose the allocation of discounts to performance obligations as a key judgement in its 2022 accounts. In closing our queries, we explained that we expect the company to clearly provide information about significant payment terms relating to its customer contracts (including, for example, information about when customer payments are typically due), as required by paragraph 119(b) of IFRS 15. |
| Entity | VinaCapital Vietnam Opportunity Fund Limited |
| 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 | 4imprint Group plc (3) |
| Balance Sheet Date | 2 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 |
Parent company cash flow statement We asked the company to explain the extent of the cash and non-cash movements in the amounts due to and from subsidiaries in the parent company’s balance sheet. The company provided a satisfactory explanation of these movements in the year. We also questioned the classification of dividends received as financing cash inflows in the parent company cash flow statement. The company agreed to classify these amounts as investing cash inflows in accordance with paragraph 33 of IAS 7, ‘Statement of Cash Flows’, in its 2021 financial statements and to restate the comparative amounts 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. Tax on defined benefit pension contributions We asked the company to clarify the basis of its allocation of tax on defined benefit pension contributions between the income statement and other comprehensive income. While we were not persuaded that the basis of allocation used best reflects the requirements of paragraph 63 of IAS 12, ‘Income Taxes’, the company clarified that the net effect on the income statement and other comprehensive income would not have been materially different had an alternative allocation policy been applied. The company undertook to reconsider certain aspects of the allocation and the related accounting policy note in future periods. We also asked the company for more information on the composition of deferred tax balances related to the pension scheme. The company satisfactorily responded to this enquiry. |
| Entity | 888 Holdings 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 |
Impairment of goodwill We requested information about the basis on which the company had allocated assets to the bingo cash generating units for the purpose of impairment testing. The company responded satisfactorily and explained the judgements it had made. Amounts due to and from subsidiaries We asked for clarification of the value of dividends received in cash during the year based on an inconsistency in the notes compared to the parent company cash flow statement. The company acknowledged that the parent company cash flow statement included an incorrect amount for the dividend cash inflow and 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. We asked the company to explain the rationale for classifying amounts due from subsidiaries as current assets and the loan payable to subsidiaries as a non-current liability. The company explained the judgements it had made and undertook to disclose details of the terms and conditions of the loan in future annual reports and accounts. The company classified cashflows with subsidiaries as operating activities and provided a net figure for the movement on amounts due to and from subsidiaries. We enquired about the nature of the underlying transactions and asked the company to explain the basis for showing a net movement on the balances with subsidiaries. The company provided a satisfactory explanation of the nature of the transactions to support the inclusion of the cashflows within operating activities. The company undertook to present separate line items for the movements in amounts due to and from subsidiaries in future annual reports and accounts. |
| Entity | Antofagasta 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 |
Accounting for tolling arrangements and treatment charges We requested more information on the company’s accounting policy for concentrate sold under tolling arrangements to smelters and roasters. The company satisfactorily explained that the smelters and roasters are the company’s customer, not its agent, and that the adjustment to revenue for ‘tolling’ or ‘treatment’ charges disclosed in the annual report is a pricing adjustment, rather than an expense of the company. The company undertook to revise the wording of its revenue accounting policy to explain in more detail the nature of the pricing of concentrate sales. Recognition of deferred tax assets We asked the company to explain the extent to which it had considered the requirements of IAS 12, ‘Income Taxes’, to recognise deferred tax assets in relation to unused tax losses to the extent that there are sufficient taxable temporary differences relating to the same taxation authority and the same taxable entity. The company satisfactorily explained that the unrecognised tax losses relate to a single entity that has no material deferred tax liabilities, and that the losses are not eligible for offset against the taxable profits of other group entities. |
| Entity | Baillie Gifford Shin Nippon PLC |
| Balance Sheet Date | 31 January 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 | Benchmark Holdings plc |
| Balance Sheet Date | 30 September 2020 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | March 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Biological assets We questioned the basis for treating live artemia as inventory, rather than biological assets. We requested a reconciliation between movements disclosed in the ‘biological assets’ note and movements in biological assets evident elsewhere in the financial statements. In addition, we queried the basis for aggregating different types of movement in biological assets in the reconciliation of changes in biological assets. We also asked for an explanation of why biological assets that will produce saleable progeny within twelve months were classified as current assets. The company provided the explanations and reconciliations requested and agreed, where relevant, to enhance its disclosures in its future accounts. Receivables from the related parties We queried the nature of, and terms and conditions attaching to, substantial outstanding balances with related parties included in the company balance sheet. We also questioned the basis for classifying these balances as current. The company provided the information requested and agreed to clarify the nature of the related party relationships in its next annual report, along with more detail on terms and conditions. It also satisfactorily explained the reasons for the classification of the balances as current in its 2020 financial statements but indicated that circumstances had subsequently changed and that the balances would be classified as non-current in its next annual report. Cash flow statement We asked the company to explain apparent discrepancies between amounts included in the cash flow statement in relation to the disposal of trade and assets and property, plant and equipment and information in the notes to the financial statements. The company provided us with the relevant information and agreed to ensure better linkage between the disclosures in the future. Deferred tax assets The group had significant deferred tax liabilities in respect of accelerated capital allowances. However, there was no deferred tax asset recognised for unutilised tax losses to offset the liabilities. We requested further information in relation to the company’s assessment of the effects of the reversal of taxable temporary differences on the probability of utilisation of the remaining tax losses and temporary differences, which the company provided. Other receivables We asked for an analysis of the ‘other receivables’ balance. The company provided us with relevant detail and agreed to provide a greater disaggregation of items of dissimilar nature in the future. We questioned the basis for recognising a separate asset and liability for purchases that remained undelivered at the year-end. The company provided a satisfactory explanation and agreed to disclose information about the nature of the contractual rights in the future, along with the judgements made when recognising a liability and separate asset. Dissolution of the joint venture (JV) in Chile We asked how the assets transferred to the group upon the dissolution of the JV in Chile were measured at initial recognition and whether any gain or loss resulted from the transaction. The company provided us with a satisfactory response. |
| Entity | BMO Global Smaller Companies PLC |
| Balance Sheet Date | 30 April 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 | Bodycote plc |
| Balance Sheet Date | 31 December 2020 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Limited |
| Quarter Published | March 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice | N/A |