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 | InterContinental Hotels Group PLC |
|---|---|
| Balance Sheet Date | 31 December 2020 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Full |
| Quarter Published | September 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice | N/A |
| Entity | Johnson Matthey Plc |
| Balance Sheet Date | 31 March 2020 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | September 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Revenue recognition – refining business The company’s revenue recognition policy stated that refining revenue is recognised over time because it is earned from enhancing an asset controlled by the customer. We asked the company to explain the basis on which it concluded that metal within its refinery is controlled by customers. The company provided a satisfactory explanation and agreed to enhance its disclosures in future accounts to enable readers to better understand the nature of the metal refining arrangements and the related performance obligations. The accounting policy also indicated that the revenue is recognised based on costs incurred as a proportion of estimated total contract costs. We asked for a description of how the methodology was applied in practice, including a description of the relevant performance obligations and transaction prices. The company acknowledged that the input method described in the accounting policy was general in nature and did not apply to refining revenue. It explained the specific method applied in the context of refining revenue and gave an undertaking to update its accounting policy in its future accounts. |
| Entity | J Smart & Co. (Contractors) PLC |
| Balance Sheet Date | 31 July 2020 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Full |
| Quarter Published | September 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice | N/A |
| Entity | Marshalls plc |
| Balance Sheet Date | 31 December 2020 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Full |
| Quarter Published | September 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice | N/A |
| Entity | Mothercare plc (3) |
| Balance Sheet Date | 28 March 2020 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | September 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Revenue recognition We asked the company to provide further information about the basis for recognising revenue from sales of goods to franchise partners on dispatch of those goods. The company’s response satisfactorily addressed our concern. The company will enhance the wording of its accounting policy in future accounts to explain its rationale. Earnings per share The loss from continuing operations did not appear to have been used as the control number when determining whether the potential ordinary shares were dilutive for the purposes of diluted earnings per share from continuing and discontinued operations and from discontinued operations. The company confirmed that it did not use the loss from continuing operations as the control number and that it would restate the 2020 amounts presented for EPS from continuing and discontinued operations and from discontinued operations. The company agreed to include an FRC reference in its 2021 accounts explaining that the enquiry from the Financial Reporting Council led to the correction. The diluted loss per share from continuing operations was determined in accordance with IAS 33 ‘Earnings per Share’. We also asked for further information about the determination of the weighted average number of shares used in the diluted EPS amounts. The company explained that the number had been calculated incorrectly and that it would present restated amounts for 2020 in its 2021 accounts. Related parties We queried whether the directors considered a certain shareholder to be a related party. This shareholder had an interest in excess of 20% of the company’s ordinary share capital on 28 March 2020 and had provided a loan to the company in 2019. The company confirmed that the shareholder was a related party and that it would give the disclosures required by IAS 24 ‘Related Party Disclosures’ in future accounts. |
| Entity | Orient Telecoms Plc |
| Balance Sheet Date | 31 March 2020 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | September 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice | Consent withheld |
| Entity | Oxford Instruments plc (3) |
| Balance Sheet Date | 31 March 2020 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | September 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Revenue recognition accounting policy We asked the company to clarify certain aspects of its revenue recognition policy, including the method used to allocate transaction prices to performance obligations, and how it had concluded that contracts for the sale and installation of complex systems contained a single performance obligation. The company satisfactorily addressed our questions and agreed to enhance the accounting policy in its next accounts. Customer deposits and deferred income We requested additional information to assist us in understanding the nature of customer deposits of £45.3m included in trade and other payables. In particular, we wanted to understand whether the amounts represent obligations to transfer goods and services under IFRS 15, ‘Revenue from Contracts with Customers’, and if so, how the company met the relevant disclosure requirements. We also asked whether there was a distinction between the customer deposits and deferred income. The company satisfactorily explained that the customer deposits and deferred income are contract liabilities under IFRS 15, as they represent obligations to transfer goods and services. It also committed to enhance the disclosures included in its next accounts to clarify the matter and to disclose the information required by IFRS 15. Bank loans and overdrafts We questioned why bankloans and overdrafts in the parent company accounts were higher than those in the consolidated accounts. The company acknowledged that, in its consolidated accounts, it had inappropriately offset positive bank balances and overdrafts that did not meet the offsetting criteria in paragraph 42 of IAS 32, ‘Financial Instruments: Presentation’. The company agreed to restate the comparative balance sheet in its next accounts by presenting the positive bank balances and overdrafts separately, and committed to provide the disclosures required by IFRS 7, ‘Financial Instruments: Disclosures’, where relevant. Cash flow statement - classification of disposal-related expenses We asked for the company’s rationale for classifying disposal-related expenses as investing activities in its cash flow statement. The company provided a satisfactory explanation and we closed the matter. Alternative performance measures (APMs) We identified a number of areas where improvements could be made to the presentation of the company’s APMs. The company accepted our observations and committed to provide reconciliations for all its APMs in future annual reports, and to ensure that APMs are not given more prominence than IFRS measures. |
| Entity | Petropavlovsk PLC |
| Balance Sheet Date | 31 December 2019 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | September 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Advances received from gold sales customers We asked for information to assist us in understanding the nature of advances received from gold sales customers of £189m. The company satisfactorily explained that the amounts are contract liabilities and committed to provide relevant disclosures in its next accounts, as required by IFRS 15, ‘Revenue from Contracts with Customers’. Impairment testing We asked the company to explain its approach to determining the long-term real gold price and the Rouble-US Dollar exchange rate used for impairment testing. We were satisfied with the company’s explanation and its undertaking to provide this information in its next annual report and accounts. We also asked the company to explain the discount rate applied. The company clarified that it applied a post-tax discount rate to post-tax forecast cash flows and separately derived the pre-tax discount rate. It also explained why this approach gave the same outcome as the methodology described in IAS 36, ‘Impairment of Assets’, which explains that an entity calculates value in use by applying a pre-tax discount rate to pre-tax cash flows. Investment agreement with the Russian Ministry of Far East Development The company’s annual reports and accounts disclosed an arrangement between the Russian Ministry of Far East Development, the Far East Grid Distribution Company and the company for the construction of a power line in the Amur region of Russia. In 2019, the company’s net cash from financing activities included gross cash inflows and outflows of $8.8m in relation to this agreement. We asked the company to provide further details of the arrangement, and to explain the basis for classifying the cash flows as financing activities under IAS 7, ‘Statement of Cash Flows’. The company provided the requested information, and explained that the investment agreement ended in November 2019. It agreed to classify the cash flows as operating cash flows and to provide enhanced disclosures if it enters into similar agreements in the future. |
| Entity | Quixant plc |
| Balance Sheet Date | 31 December 2020 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Limited |
| Quarter Published | September 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice | N/A |
| Entity | Royal Mail plc |
| Balance Sheet Date | 31 March 2019 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | September 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice | N/A |
| Entity | RSM UK Holdings Limited |
| Balance Sheet Date | 31 March 2019 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | September 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice | N/A |
| Entity | Softcat plc |
| Balance Sheet Date | 31 July 2020 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Full |
| Quarter Published | September 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice | N/A |
| Entity | Stock Spirits Group PLC |
| Balance Sheet Date | 30 September 2020 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | September 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Brands We asked the company to confirm whether there were any individual brand assets that were material to the financial statements. The company provided details of such brands for 2020 and agreed to disclose the carrying amount of any individually material brands in its 2021 annual report and accounts. We also queried whether the factors supporting the assessment of an indefinite useful life for brands applied to all individually material indefinite life brands. The company confirmed that this was the case. We recommended that this was clarified in future annual reports and accounts. Impairment testing of goodwill and indefinite life intangible assets We asked the company to explain how it was satisfied that using post-tax cash flows and a post-tax discount rate, did not give rise to material differences from the requirements of IAS 36 ‘Impairment of Assets’. The company provided a satisfactory response and agreed to disclose the pre-tax discount rate in future annual reports and accounts. Accounting policy for cash and cash equivalents We asked the company to clarify the maturity threshold used for determining which short-term investments qualify as cash equivalents, for the purposes of IAS 7 ‘Statement of Cash Flows’. The company confirmed that it made this assessment by reference to their maturity from acquisition and agreed to clarify the accounting policy in future annual reports and accounts. |
| Entity | Superdry Plc |
| Balance Sheet Date | 25 April 2020 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | September 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Deferred tax We asked the company for details of the evidence supporting the recognition of a material deferred tax asset balance relating to jurisdictions that had suffered a loss in either the current or preceding period and to explain why its recognition was not disclosed as a significant estimate under paragraph 125 of IAS 1 ‘Presentation of Financial Statements’. The company provided the information requested and undertook to include more specific disclosures to explain the evidence supporting such deferred tax assets in its 2021 annual accounts. We also requested further details about the recognised and unrecognised deferred tax assets that the company had attributed to IFRS 16 ‘Leases’. The company provided satisfactory explanations and undertook to enhance its disclosure of such deferred tax amounts in future. We requested a breakdown of material deferred tax balances described as relating to ‘temporary differences’. The company provided a satisfactory analysis and undertook to provide disclosures about individually large temporary differences in future. Onerous property-related contracts provision We asked the company for additional information to explain the circumstances that led to a release from its onerous property-related contracts provision in the year. The company provided a satisfactory explanation of the contributing factors. Deferred income We queried the presentation of balances reported as deferred income and the completeness of the disclosure of contract liabilities. The company confirmed the completeness of contract liabilities and explained that the gross amount of the contract liabilities balance was included in deferred income but an amount netted against it had been included in another line item. The company undertook to enhance its disclosure of contract liabilities in future and to present the net amount in the same line. Alternative performance measures (APMs) We queried the company’s use of the term ‘underlying’ in its APMs and how the measures were described, noting some apparent inconsistencies in terminology. We also asked how the label used for the APM met the requirement of the ESMA Guidelines on APMs to allow users to understand the relevance and reliability of the measure. The company gave a satisfactory explanation of its use of APMs. It undertook to change the terminology used to describe its APMs from ‘underlying’ results to ‘adjusted’ results and the description of ‘exceptional and other items’ to 'adjusting items'. Banking covenants We asked for clarification of an apparent inconsistency in commentary about the company’s expected compliance with its banking covenants under a ‘reverse stress test’ between the Chief Financial Officer’s Review and the Independent Auditor’s report. The company explained that there was no intended inconsistency, and that the reverse stress test, by definition, resulted in a covenant breach. The company undertook to ensure that in future the wording used in management’s statements on going concern would be more aligned to that used in the auditor’s report. It will also explain more explicitly the meaning of a reverse stress test. Impairment of receivables We asked the company to explain an apparent inconsistency between the amount presented on the face of the group statement of comprehensive income for ‘impairment losses on trade receivables’ and equivalent amounts presented in the notes to the accounts. The company provided a satisfactory explanation and undertook to present these amounts consistently in future. Goodwill We noted that the company’s conclusion that the cash flows used in the goodwill impairment test for the Retail and Wholesale CGUs were insensitive to any reasonably possible changes to key assumptions appeared to be inconsistent with the downturn in performance experienced by both CGUs. We asked for details of the headroom recorded against each CGU following management’s impairment calculations and the impact on that headroom of the reverse stress test scenarios to demonstrate how the company came to this conclusion. The company provided these details which showed significant headroom remaining in all cases. The company also set out the factors that explained the apparent inconsistency between significant store asset impairments and no goodwill impairment being recognised. |
| Entity | Telecom Plus plc (3) |
| Balance Sheet Date | 31 March 2020 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | September 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Significant estimate: revenue recognition We asked the company to provide further information about the estimation uncertainty relating to revenue from non-smart meter customers, including the carrying amounts of associated balances and sensitivities or ranges of reasonably possible outcomes. The company agreed to enhance its disclosure about this significant estimate in future annual reports and accounts. Expected credit losses We asked for an explanation of the basis on which the allowance for credit losses had been calculated and for clarification as to whether the non-current financial assets had been assessed for impairment. Additionally, we asked for further information about the requirement of paragraph 35M of IFRS 7, ‘Financial Instruments; Disclosures’, to disclose, by credit risk rating grades, the gross carrying amount of financial assets. The company confirmed that non-current financial assets are assessed for impairment and agreed to augment its disclosures to include details of the inputs, assumptions and estimation techniques used to calculate expected credit losses in future annual reports and accounts. The company explained that the key determinants in calculating expected credit losses for trade receivables are ageing and whether an indebted customer remains with the Group. Disaggregated gross trade receivables and the corresponding expected credit losses will be presented on this basis in future annual reports and accounts. Impairment charge in the year Given the materiality of the credit loss impairment charge in the year, we questioned why this had not been disclosed separately on the face of the statement of comprehensive income as required by paragraph 82(ba) of IAS 1. The company agreed to separately show the credit loss impairment charge on the face of the statement of comprehensive income in future annual reports 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 result of our enquiry. |