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 | Fuller, Smith & Turner P.L.C. |
|---|---|
| Balance Sheet Date | 27 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 | Grafton 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 |
Alternative performance measures (‘APMs’) The company presented APMs that included balances from a business that had been disposed of but had not yet completed. We asked that they clarify the rationale for including these items within their APMs. The company explained that the adjustments were made to give investors and stakeholders a better understanding of the financial position of the group at the interim reporting date. We also asked the company to explain whether a further balance, a right of use asset, was considered to be an APM. The company confirmed that it was, and that it had been disclosed in order to be consistent with the alternative presentation of net cash and net debt, which included amounts relating to the deemed disposed business. The company agreed to provide greater clarity and explanations of the measures in its 2022 interim report. The divestment of the business giving rise to the APM adjustments completed in December 2021 meaning that the metrics questioned will not feature in the company’s 2021 annual report and accounts. |
| Entity | Headlam 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 |
Interim cash flow statement We asked the company to clarify the operating cash flow adjustments arising from the sale of a subsidiary and, in particular, the treatment of the loss on disposal of the subsidiary. The company explained that the loss on disposal was added back to operating cash flows through its inclusion in the changes in trade and other payables line of the cash flow statement. The company agreed to present the loss on the sale of the subsidiary as a separate line item in the cash flow statement, along with improved accompanying disclosure, in its next annual report and accounts. |
| Entity | Helios Towers 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 |
Judgement that contracts with customers do not contain leases We questioned the conclusion that the contracts the company has with its customers to provide space on telecommunications towers do not contain leases, which it disclosed as a critical judgement. We enquired specifically about the terms of substitution rights in these contracts and the conclusion that these rights were substantive. The company provided satisfactory explanations and agreed to enhance the critical judgement disclosure and revise its reference to ‘lease’ agreements in its 2021 annual report and accounts. Revenue recognition We asked the company to clarify disclosures describing certain revenue as being recognised ahead of agreement with the customer. The company satisfactorily explained some of the key terms of its contracts with customers and how these have been considered in the recognition of revenue. It undertook to enhance its revenue disclosures to more clearly articulate the point at which revenue is recognised where additional space on towers is used. Working capital We asked the company to explain the difference in working capital movements between the consolidated statement of cash flows and the consolidated statement of financial position and how changes in working capital were explained within the strategic report. The company provided a satisfactory analysis and undertook to enhance the disclosures of balance sheet movements in its 2021 strategic report. |
| Entity | Herald Investment Trust Plc |
| Balance Sheet Date | 30 June 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 | HgCapital Trust plc |
| Balance Sheet Date | 30 June 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 | Hyve Group plc (3) |
| 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 |
Assets and liabilities recognised in respect of acquisitions – leases We asked the company to explain why a right-of-use (‘ROU’) asset arising from a business combination in the period was significantly less than the related lease liability recognised. The company explained that the ROU asset had been reduced to reflect the fact that the company did not intend to use all the office space leased. The company acknowledged that the ROU asset had been adjusted to reflect company-specific circumstances rather than any differences between the lease terms and market terms, as required by paragraph 28B of IFRS 3 ‘Business Combinations’. It agreed that the ROU asset should instead have been measured at the same amount as the lease liability. The company agreed to restate the comparative amounts in the following year’s annual report and accounts, with consequential amendments to goodwill, deferred tax, impairment and depreciation. As the restatement affects the primary statements, the company agreed to disclose in its next report and accounts that the matter came to its attention as a result of the Financial Reporting Council’s enquiry. Assets and liabilities recognised in respect of acquisitions – deferred tax assets We sought clarification of how the deferred tax relating to the acquisitions was calculated. The company provided this information, noting that a deferred tax asset relating to deferred income and lease balances had been incorrectly described as relating to provisions and accruals. The company undertook to ensure that movements in deferred tax are more appropriately described in future annual reports and accounts. The company agreed to disclose the tax effects of future acquisitions, should this be relevant and material. We suggested considering whether the tax effect of acquisitions also needs to be discussed in future strategic reports in order to satisfy the requirement of section 414C of the Companies Act 2006, to provide a balanced and comprehensive analysis of its position at the year end. Assets and liabilities recognised in respect of acquisitions – deferred income We asked the company for details of the nature of the obligation relating to the acquired deferred income and the basis for which the fair value was determined. We were satisfied with the explanation provided and encouraged the company to disclose details of how the fair value of acquired deferred income is determined, should this be material, in future annual reports and accounts. Recoverability of intercompany receivables and investment in subsidiaries We requested information about the basis on which the company had determined that the intercompany receivables and investment in subsidiaries included in the company statement of financial position were recoverable. The company provided a satisfactory response. We explained that more granular disclosure about the impairment methodology applied would have helped users to understand the basis for the impairment charge recognised. We also noted that we would generally expect ‘investment in subsidiary’ balances to be impaired before intercompany debtors, given that equity holders typically bear losses before creditors. |
| Entity | ICG Enterprise Trust 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 | Impax Environmental Markets plc |
| Balance Sheet Date | 31 December 2020 |
| 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 | Impellam Group plc |
| Balance Sheet Date | 1 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 |
Non-recourse financing agreements We asked the company to provide further information about the nature of its non-recourse financing agreements and their terms conditions, and to explain how the resulting transactions had been accounted for and presented in the annual accounts. The company provided the information requested, explained the accounting and presentation, and agreed to clarify its disclosure of such arrangements in the 2021 annual report and accounts if applicable. Impairment testing In response to our query, the company confirmed that impairment tests had been performed at both the interim and year-end reporting dates. It confirmed that the tests had taken account of the indication of impairment provided by the company’s market capitalisation, clarified the basis on which the company’s Information Technology cash generating unit (CGU) had been impaired and explained the recoverable amount disclosed for the CGU. The company agreed to ensure that its future disclosures clarify the timing and impact of impairment tests where similar circumstances arise. Lease terms We requested an explanation of how the company’s approach to determining the lease term reflected the requirement of IFRS 16, ‘Leases’, to include periods covered by extension and termination options only when it is ‘reasonably certain’ that the option will, or will not, be exercised. The company clarified that, although its disclosures referred to the ‘expected’ lease term, it had applied the IFRS 16 requirement. It agreed to revise its disclosures in the 2021 annual report and accounts to refer to the ‘reasonably certain’ criterion. |
| Entity | Intermediate Capital Group plc (3) |
| Balance Sheet Date | 31 March 2020 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | March 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Non-consolidation of carried interest partnerships Parent company accounts We asked for details about the line ‘Cash flow on behalf of subsidiary undertakings’ and the reasons for classifying these cash flows within investing activities in the parent company’s cash flow statement. We also asked for an explanation about the increase in investments in subsidiaries and how these were reported in the cash flow statement. The company explained that the line in question included cash outflows in respect of investment in subsidiaries. The line reported netted off aggregated cash flows of dissimilar nature and included some financing cash flows. The company agreed to disaggregate cash flows of a dissimilar nature, to ensure gross presentation, to reclassify items of a financing nature and to restate comparative period information as appropriate. In responding to our queries, the company also performed a review of intercompany receivables and identified that some amounts related to long-term investments. The company undertook to reclassify these balances from current to non-current assets and to restate comparative period information accordingly. Consolidated accounts We requested an explanation of the difference between the amounts in respect of the purchase of own shares reported in the statement of changes in equity (SOCE) and the consolidated cash flow statement. The company explained that the SOCE included an incorrect amount in respect of the shares retained by the employee benefit trust. The company agreed to restate the SOCE accordingly. As these restatements affected the primary statements, we asked the company to disclose the fact that the matters had come to its attention as a result of our enquiry. |
| Entity | Intermediate Capital Group plc (3) |
| Balance Sheet Date | 31 March 2021 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Limited |
| Quarter Published | March 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
The following matters arose as a result our limited scope review of how the undertakings the company gave during our review of its 2020 annual report and accounts were addressed in its 2021 report and accounts. Prior year restatements We queried a number of significant prior-year restatements of the group and parent company cash flow statements, which were not explained in the notes to the financial statements. The company provided us with adequate explanations for the restatements and agreed to include the missing disclosures in the forthcoming interim financial statements. As the disclosures related to prior-year restatements of the primary statements, we asked the company to disclose the fact that the matters had come to its attention as a result of our enquiry. Other matters in relation to the cash flow statements We asked for reconciliations of a number of items in the parent company and group cash flow statements to the corresponding movements in the statements of financial position. This highlighted that the dividends declared by subsidiary undertakings were aggregated within ‘Net investment returns’ line, rather than reported in the ‘Interest and dividend income’ line. The company agreed to report such amounts separately in the future and to restate the comparative amounts accordingly. In closing the case we noted that we expect material non-cash movements in the parent company investments in subsidiaries to be disclosed in the future. We also explained that we expect the captions used for financial line items to reflect their contents and items of dissimilar nature to be disaggregated. |
| Entity | International Consolidated Airlines Group S.A. |
| 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 alternative performance measures (‘APMs’) and, as such, only these disclosures were reviewed. Exceptional items – tax The company’s accounting policy for exceptional items explained that exceptional items are those that require separate disclosure due to their size, nature or incidence. The policy included a list of examples of exceptional items, none of which related to tax. We asked the company to explain the extent to which it considered tax-related items when applying the accounting policy. We closed the matter after the company explained that its accounting policy for exceptional items applies to both tax and non-tax items. In closing the matter, we observed that, as the existing accounting policy is generic, it may be helpful if the company clarified that the policy applies to both tax and non-tax items. We also asked for the company’s basis for concluding that certain tax credits and charges disclosed in its IFRS accounts should not be classified as exceptional items. We were satisfied with the company’s response, which explained that gains or losses due to changes in tax rates were not classified as exceptional items because such changes occur on a regular basis. It also explained that a tax charge from the derecognition of deferred tax assets was not classified as an exceptional item in view of guidance in our 2020 Covid-19 thematic review, which discourages the arbitrary splitting of items between Covid-19 and non-Covid-19 elements, as such allocations are likely to be highly subjective and, therefore, unreliable. Tax repayment We asked the company to provide us with additional information to enable us to understand the nature of a tax repayment recognised during the year and the basis on which it had been included in the company’s alternative performance measures. The company explained that the tax repayment was recognised when it elected to partially carry back tax losses incurred during 2020 to the previous 12-month period, as allowed by the Corporation Tax Act 2010. We closed our query in view of the above guidance contained in our Covid-19 thematic review. |
| Entity | IP 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 |
Investment entity exemption We asked for an explanation of the basis on which the company determined it did not qualify for the investment entity exemption in IFRS 10 ‘Consolidated Financial Statements’. The company’s response satisfactorily addressed the question we had raised and included a commitment to provide specific disclosure about the assessment of the investment entity exemption in future annual reports to improve the clarity over the basis of preparation of the financial statements. Fair value measurement We asked for further information about the fair value measurements of unquoted equity investments categorised within ‘other valuation methods’ and the sensitivity of these measurements to changes in unobservable inputs. The company provided the information requested and agreed to expand and clarify the description of its valuation techniques and to more explicitly link those techniques to numerical analysis in future annual reports. It also agreed to further disaggregate the ‘other valuation methods’ category in the numerical analysis included in the notes to the financial statements. |
| Entity | JPMorgan European Discovery Trust 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 |