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 | Glencore plc |
|---|---|
| Balance Sheet Date | 31 December 2019 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | June 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Impairment assumptions for fair value less costs of disposal (FVLCD) calculations We asked the company whether the assumptions made when testing assets for impairment were consistent with past experience or external sources of information and if not, why a market participant would use the company’s assumptions in their assessment of the FVLCD of assets. We also asked the company whether estimation risks relating to project costs, delays and the completion of multi-year projects, which were relevant to the impairments in the current period, were a significant source of estimation uncertainty. We noted that the impairments recognised in the period to 30 June 2020 were significantly larger than those arising from reasonably possible changes in assumptions disclosed in the 2019 financial statements. The company satisfactorily responded to our queries and acknowledged that the estimation risks pertaining to the realisation, completion or successful technical commissioning of challenging, complex and multi-year projects are reasonably possible scenarios that warrant disclosure. The company agreed to include sensitivities related to such estimation risks where relevant. Climate change – impairment indicator for coal assets We enquired as to whether climate change and a longer-term move to decarbonisation were impairment indicators for coal assets. The company explained the impairments recognised in the year were driven more by short-term factors given the relatively short mine lives. However, the company agreed to provide a better linkage of the long-term risks of lower demand for coal as a result of decarbonisation, to other shorter-term factors, such as commodity price movements, influencing the impairments recognised. It also undertook to enhance the IAS 1, ‘Presentation of Financial Statements’, paragraph 125 disclosures to include the sensitivity of asset values to changes in assumptions related to climate change. Climate change disclosures in the strategic report We questioned whether the significance of coal and fossil fuels to the company was sufficiently prominent in the climate change disclosures. The company agreed to enhance its future disclosures to link better the effects of climate change and the impact it may have on the future contributions from coal activities. Segments We asked for further information about the basis on which operating segments had been aggregated into two reportable segments. The company satisfactorily responded to our query, and gave an undertaking to include the disclosures of the judgements made by management in applying the aggregation criteria, including the economic indicators assessed in determining that the aggregated segments share similar economic characteristics, as required by paragraph 22(aa) of IFRS 8, ‘Operating Segments’. Alternative performance measures (APMs) We asked the company to explain why the proportionate consolidation adjustment was applied to three out of four material associates and joint ventures as part of the presentation of APMs. The company explained that the APM treatment was consistent with how the company monitored the financial performance of the fourth associate, which operated as a fully stand-alone group. We accepted the company’s explanation and noted that it would be helpful to include an explanation of this in future annual reports. We asked the company for further information about amounts presented in the reconciliations of APMs and the extent to which it believed that the presentation of adjusted EBIT and EBITDA were capable of being understood by a user of the report and accounts. We accepted the company’s response; however, we noted that we found the reconciliation of adjusted EBIT / EBITDA to be complex and believed that it would be helpful to a user to provide further explanation in the annual report of the adjustments presented in these reconciliations. We questioned whether, in the financial review, sufficient prominence was given to measures directly stemming from the financial statements when compared to the equivalent APMs. The company agreed to provide a better balance of certain information. |
| Entity | Great Portland Estates plc (3) |
| Balance Sheet Date | 31 March 2020 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | June 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Income statement presentation We asked how the duplication of line items in the income statement and the offsetting of amounts of income and expense was consistent with the requirements of IAS 1, ‘Presentation of Financial Statements’. The company acknowledged that the presentation of additional lines on the face of the income statement may have made it unclear which amounts were presented in accordance with IFRS and agreed that this may have been confusing for users. The company agreed to amend its presentation of the income statement in its future reporting to remove the duplication of line items and present line items on a gross basis without offsetting. As this change affects a primary statement, 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. |
| Entity | Hilton Food Group plc (3) |
| Balance Sheet Date | 29 December 2019 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | June 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Cash flow statement We questioned why the proceeds from the issue of an inter-company loan were classified as financing, rather than investing, activities in the parent company cash flow statement. The company acknowledged that it would have been more appropriate to classify this as an investing activity and agreed to restate the comparatives in its next 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 result of our enquiry. We also asked why the proceeds from the maturity of a bank treasury deposit were classified as financing, rather than investing, activities in the consolidated cash flow statement. The company explained that this classification reflected the fact that these bank deposits were directly linked to certain financing activities, and agreed to explain this in its future reporting. Joint ventures We asked the company for further information about why its joint venture facilities in Australia were not accounted for as subsidiaries due to the Group having taken full operational control following a restructuring. The company provided a satisfactory explanation, which it agreed to disclose in future. We suggested clarifying that both joint venture partners had equal representation on the joint venture board which controlled the key business and strategic decisions. We also asked the company to explain the judgements it made in determining that it was acting as an agent on behalf of the joint venture rather than as principal, in certain transactions with customers, with revenue being recognised on a net basis. The company provided a satisfactory explanation and agreed to more fully describe this in its next annual report and accounts. Leases We asked for more information about the changes to the assessment of purchase options in leases which resulted in significant additional liabilities being recognised on the initial application of IFRS 16, ‘Leases’ at 31 December 2018. The company concluded that, having reviewed this further, these lease arrangements should have been recognised as finance leases, rather than operating leases, in accordance with the requirements of IAS 17, ‘Leases’, in its 2018 accounts. The company agreed to disclose in its next report and accounts details of this error, including the adjustment required to the assets and finance lease liabilities reported in the balance sheet in its 2018 accounts. The company explained that, following the adoption of IFRS 16, the adjustments required to its 2019 accounts to adjust for this error were not material. We also asked the company to clarify the extent of future cash flows that the company is potentially exposed to arising from leases. The company provided a satisfactory explanation. Share-based payment We asked for more information about the adjustment in respect of employee share schemes included in the statement of changes in equity, as this appeared inconsistent with the charge for share options included in the employee benefit expense. The company explained that the adjustment included cash paid to satisfy share scheme awards classified as equity-settled share-based payments. The company acknowledged that these awards should have been accounted for as cash-settled share-based payments once a practice of offering a cash alternative had been established in 2018. The company explained that it had concluded that the adjustments required to correct this error were not material and that there is no longer a constructive obligation to settle awards in cash following the ending of this practice in 2020. The company agreed to explain this in its next report and accounts. |
| Entity | IG Group Holdings plc |
| Balance Sheet Date | 31 May 2020 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Full |
| Quarter Published | June 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice | N/A |
| Entity | IWG plc (3) |
| Balance Sheet Date | 31 December 2019 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Limited |
| Quarter Published | June 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
This company was selected as part of our thematic review related to the application of IFRS 16 ‘Leases’ and, as such, only the disclosures relating to leases were reviewed. Cash flow statement We queried the company’s presentation of interest payments on lease liabilities as financing cash flows. This was inconsistent with its existing policy of classifying interest payments on financial liabilities as operating cash flows. The company agreed to follow a consistent policy for all interest payments and to restate the comparative amounts in the cash flow statement to classify interest on leases as operating cash flows. We also queried the presentation of lease incentives (contributions received from partners to enhance premises leased by the company) in the cash flow statement. It was also not apparent how the lease incentives were reflected in the movements in the right-of-use assets and lease liabilities notes to the financial statements. The company explained that the amounts received in respect of the lease incentives were netted against lease repayments recognised in the cash flow statement. The company acknowledged that IAS 7 'Statement of Cash Flows' requires gross presentation of cash flows in such cases and undertook to restate their cash flow statement accordingly. The company also agreed to disclose separately partner contributions in the related notes to the financial statements. 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. Alternative Performance Measures (APMs) The management commentary in the strategic report stated that information provided on an IAS 17, ‘Leases’, basis better represented the economics of the company’s leases and referred to ‘Operating profit’ in relation to the information presented on an IAS 17 basis. IAS 17 had been superseded by IFRS 16 for the period in question and information provided in accordance with IAS 17 was, therefore, an APM. We asked that, in future, the company not give disclosures that appeared to give more authority to APMs than to their IFRS equivalents, to which the company agreed. Lease term We queried the determination of the term of the company’s leases and the specific factors considered in the assessment of extension and termination options in those leases. The company provided a satisfactory response. We explained that users of the accounts would also find the information provided to us helpful and the company agreed to provide it in future accounts. Accounting policies We queried the nature of the ‘other adjustments’ made by the company on transition from IAS 17 to IFRS 16 and the ongoing accounting policy for lease incentives. We also queried whether the lessor accounting model should be applied to the company’s contracts with customers. The company provided adequate explanations and agreed to enhance their relevant accounting policies in the future. |
| Entity | James Fisher and Sons plc |
| Balance Sheet Date | 31 December 2019 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | June 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Accounting for an investment in Murjan Al-Sharq for Marine Contracting LLC (“Murjan”) We asked the company to explain why it had not consolidated Murjan in its financial statements to 31 December 2019, despite having a 60% shareholding and having consolidated Murjan in its interim financial statements to 30 June 2019. The company explained that, when the interim financial statements were prepared, the company believed that it had control, as defined in IFRS 10 ‘Consolidated Financial Statements’ of Murjan, having acquired its holding in January 2019. Subsequent to 30 June 2019, the company reconsidered whether it had control of Murjan in the light of the requirements IFRS 10 and events following the acquisition. The company told us that, following this reconsideration, it concluded that it did not have control over Murjan. Instead, it accounted for the investment as an associate with a carrying value of nil. It did not reconsider its treatment of Murjan in the 2019 interim financial statements as it did not believe the effect of deconsolidation would be material. In its correspondence, the company informed us that, in 2020, it had disposed of its shareholding in Murjan. It agreed, to the extent necessary for an understanding of the 2020 financial statements, to provide appropriate disclosure of the disposal. Accounting for provisions and contingent liabilities We asked for clarification as to whether there were provisions for amounts other than warranty provisions, as the disclosure in the annual report was not clear. The company confirmed that there were no other provisions or contingent liabilities. We suggested that the company make its disclosure on this matter clearer in future annual reports. |
| Entity | Jet2 plc |
| Balance Sheet Date | 31 March 2020 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Full |
| Quarter Published | June 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice | N/A |
| Entity | J Sainsbury plc |
| Balance Sheet Date | 7 March 2020 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | June 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Parent company balance sheet We asked the company to clarify whether it had carried out an impairment review of the subsidiary investment balances, and amounts owed by group companies, in the parent company accounts. The company confirmed that an impairment review had been completed and provided a summary of its analysis. The company undertook to include additional disclosures in its next accounts in relation to the impairment review performed. Review of goodwill for impairment We questioned the company’s description of its review of goodwill for impairment as it did not appear consistent with IAS 36. Specifically, the company appeared to have only compared the recoverable amount of the CGU to the carrying value of goodwill, rather than compare the recoverable amount with the carrying amount of the CGU including goodwill. The company clarified that when testing goodwill balances for impairment, the recoverable amount of the CGU to which goodwill was allocated was compared to the carrying amount of the unit including goodwill, as required by paragraph 90 of IAS 36, and undertook to amend the disclosures in its 2021 accounts to make this clear. Retirement benefit surplus We asked for further information about the basis for management’s conclusion that it had an unconditional right to a refund of surpluses in relation to the Sainsbury's and Argos sections of the pension scheme. We also asked the company to explain the amendments to the Argos section rules which had resulted in the reversal of the ‘minimum funding requirement’ liability of £134m. We were satisfied with the company’s explanations about the changes in the Argos section rules and the basis on which management concluded that it had unconditional rights to refunds in respect of both the Sainsbury’s and Argos sections of the pension scheme. We encouraged the company to disclose in its next accounts that, in determining whether a refund was available, the trustees did not have a unilateral power to wind up the scheme nor augment benefits while the scheme was ongoing, and that in this respect it had assumed that there would be a gradual settlement of the planned liabilities over the life of each plan. |
| Entity | Kainos Group plc |
| Balance Sheet Date | 31 March 2020 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | June 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Disclosure about significant estimates Disclosures about the amount and sensitivities, or ranges of potential outcomes of estimation uncertainties, did not appear to be provided for matters described as key sources of estimation uncertainty in the company’s 2020 report and accounts. The company confirmed that, in future, additional disclosure would be given in respect of the research and development expenditure credits (‘RDEC’) income, including the carrying amount and sensitivity information. The company agreed to provide additional disclosure for the fixed-price service revenue to the extent that it continued to be a significant estimate. The company clarified that, in respect of the impairment of goodwill, share-based payment arrangements and perpetual licence income there was no significant risk of material adjustment to the related carrying amounts in the next year. Accordingly, we noted that we would expect a clear distinction to be made between the disclosures required by paragraph 125 of IAS 1 'Presentation of Financial Statements', where there is a significant risk of a material adjustment in the next year, and voluntary disclosure of other uncertainties. Expected credit loss provision We asked for more information in relation to the lifetime expected credit loss (‘ECL’) recognised for trade receivables and contract assets. We asked the company to confirm the ECL recognised in respect of the contract assets and to explain any judgements made in determining the impairment loss. The company provided a satisfactory analysis of the assessment, and confirmed the amount of ECL recognised against the contract assets. It clarified that as this was not material, it was not disclosed separately. The company satisfactorily explained the judgements made and confirmed that the ECL provision did not represent a key source of estimation uncertainty. Recognition of research and development expenditure credits (‘RDEC’) income We asked the company to explain its accounting policy for recognising income from RDECs as the company’s accounting policies referred to both IAS 20 'Accounting for Government Grants and Disclosure of Government Assistance' and IAS 37 'Provisions, Contingent Liabilities and Contingent Assets'. The company provided a satisfactory explanation and clarified that the RDEC income is accounted for under IAS 20. The company agreed to remove the reference to IAS 37 in its future accounts. Revenue recognition We asked for further information about the company’s accounting policy for revenue from its software licences. The company provided a satisfactory analysis. The company acknowledged that the accounting policy for the perpetual licence income was not required to be disclosed as the revenue recognised in 2019 and 2020 was not material. The company agreed that should the revenue from the perpetual licences remain at this level in future, the related disclosure would be removed. |
| Entity | Land Securities Group PLC |
| Balance Sheet Date | 31 March 2020 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Full |
| Quarter Published | June 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice | N/A |
| Entity | McBride plc |
| Balance Sheet Date | 30 June 2020 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Full |
| Quarter Published | June 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice | N/A |
| Entity | Mears Group PLC |
| Balance Sheet Date | 31 December 2019 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | June 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Debt covenants We asked for more information about the company’s banking covenants. The company gave more detail about the covenants attached to the borrowing facilities and its calculation of headroom as at 31 December 2019 and 30 June 2020. The company agreed to provide additional information in its 2020 financial statements in respect of banking covenants. Revenue recognition We sought further explanation of accounting policies for revenue recognition, specifically for revenue from mobilisation activities and the basis for recognising revenue over time from work orders under schedule of rates contracts and from professional services. We considered the information and explanations the company provided and observed that users would benefit from more detail about the performance obligations identified in mobilisation activity, the methods, inputs and assumptions for allocating the transaction price to mobilisation elements. A more detailed explanation of the method applied to measure the stage of completion for professional services and the timeframe over which such revenue arises would also be helpful. Contract assets and liabilities We asked the company to clarify the disclosures relating to contract assets and liabilities. The company provided the information requested and agreed to revise the narrative disclosures and to provide better explanation in its future accounts where there are significant changes in the contract asset and contract liability balances. We noted our expectation that material contract liability balances be disaggregated and reported separately from accruals or other types of liability. Estimation uncertainty relating to acquisition accounting and contract recoverability We asked for additional information relevant to key estimation uncertainties. Having considered the information and explanations the company provided, we obtained the company’s agreement to disclose the carrying amount of the contract asset balance subject to contractual dispute, the factors considered when assessing the carrying value, and the range of reasonably possible outcomes, to the extent that this subset is material for the 2020 financial year. The company also agreed to provide additional information to help readers better understand estimation uncertainty in respect of future acquisitions. |
| Entity | Melrose Industries PLC |
| Balance Sheet Date | 31 December 2019 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Limited |
| Quarter Published | June 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice | N/A |
| Entity | Mirriad Advertising plc |
| Balance Sheet Date | 31 December 2019 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Limited |
| Quarter Published | June 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
This company was selected as part of our 2020 thematic review related to the application of IFRS 15 ‘Revenue from Contracts with Customers’ and, as such, only the disclosures relating to revenue recognition were reviewed. Revenue recognition policy We sought further clarification about aspects of the company’s revenue recognition accounting policies including:
The company provided satisfactory clarification of these points and agreed to improve narrative disclosures about its revenue accounting policies in its future annual reports. Application of revenue recognition policy to one particular contract We also asked for additional information about one particular contract, where revenue was recognised in a different manner to other contracts. We discussed with the company the particular features of this contract, the judgements made, and how they impacted the recognition of revenue. We concluded that the approach taken by the company resulted in revenue recognised under this contract for the relevant periods which was materially consistent with what was required under the standard. The company agreed to take account of the points raised during discussion when negotiating and accounting for future contracts. |
| Entity | Mitie Group plc |
| Balance Sheet Date | 31 March 2020 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Full |
| Quarter Published | June 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice | N/A |