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 | 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 |
| Entity | MoneySupermarket.com Group Plc |
| Balance Sheet Date | 31 December 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 | Mountview Estates P.L.C. |
| 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 | National Grid 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 |
Reconciliation of changes in liabilities arising from financing liabilities We asked the company to explain how items presented in the ‘reconciliation of cash flow from financing activities to the cash flow statement’ and the ‘reconciliation of changes in liabilities arising from financing activities’ reconciled to the cash flow statement and related notes. In particular, we asked the company to clarify how the analysis of cash flow movements between borrowings and financing derivatives had been determined. The company provided the information and committed to enhance the disclosure in its future accounts, by analysing financing liabilities between borrowings and financing derivatives. We also asked the company to explain why derivative cash flows from investing activities were included as cash flows relating to financing activities within net debt in the reconciliation of cash flow from financing liabilities given that such derivatives did not form part of net debt. The company responded satisfactorily and provided an analysis of financing derivatives which demonstrated that cash flows from investing activities were not included as cash flows relating to financing activities. Alternative performance measures We asked the company for further information regarding non-cash movements presented in the summary cash flow statement in the strategic report. The company provided the information. Regulatory timing differences We asked the company to explain how it had accounted for timing differences arising as a result of regulatory price controls. The company satisfactorily explained that these amounts arise because regulatory limits restrict the amount of revenue which can be collected each year. Any excess over the permitted level of revenue must be returned to customers in subsequent periods; similarly, where less is collected, the balance is recovered from customers in subsequent periods via a decrease, or increase, in future unit prices. No liability is recognised for amounts to be repaid to customers as the customers who will benefit from the decrease in future unit prices are not the same customers who were originally invoiced. The company has committed to further clarify this treatment in its future accounts. Long Island Power Authority agreement We asked the company to provide further information regarding the basis on which it had accounted for income arising under the LIPA power supply agreement. The company satisfactorily explained the factors considered in determining that the agreement was an operating lease and the basis on which income was recognised. The company confirmed it would make this clearer in its future accounts. |
| Entity | Nationwide Building Society |
| Balance Sheet Date | 4 April 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 | NextEnergy Solar Fund Limited |
| 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 |
Diluted loss per share The company had presented a lower diluted loss per share than basic loss per share, which we questioned given that IAS 33 ‘Earnings per Share’ requires potential ordinary shares to be treated as dilutive only when their conversion to ordinary shares would decrease earnings per share or increase loss per share from continuing operations. The company acknowledged that the diluted loss per share should have been the same as the basic loss per share and agreed to correct the disclosure in its next annual report and accounts. |
| Entity | Nichols 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 |
Cash flows on acquisition of subsidiary The statement of cash flows presented a cash outflow within investing activities, in relation to the acquisition of a subsidiary, which comprised the cash paid as consideration for the acquisition. The notes to the financial statements also showed that an amount of cash was acquired as part of the assets of the subsidiary. However, the cash acquired with the subsidiary was not presented within investing activities in the statement of cash flows, as required by paragraph 42 of IAS 7 ‘Statement of cash flows’. The company confirmed that the cash acquired had been incorrectly omitted from investing activities; however, the company did not consider the amount to be material. We accepted the company’s response. The company agreed to consider the matter for any future acquisitions. Estimation uncertainty relating to brand support accruals We asked the company why the carrying value of brand support accruals was disclosed as a key source of estimation uncertainty, as the disclosures also stated that the level of estimation uncertainty in the year end accrual was insignificant. The company explained that the level of estimation uncertainty can vary from year to year and that there was less uncertainty as at 31 December 2019 compared to previous years. The company agreed to continue to assess the level of uncertainty each year and, based on that assessment, to determine whether the uncertainty should be disclosed as a key source of estimation uncertainty under paragraph 125 of IAS 1 ‘Presentation of Financial Statements’. Disclosure of the effect of foreign exchange in the strategic report We asked for further information about the effect of foreign exchange movements on the company’s revenue and margins. The strategic report provided disclosures of revenue and revenue growth for the international business; however, there was no explanation of the impact of foreign exchange movements on revenue and margins in the year. The company satisfactorily responded to our query, explaining that while the company made international sales, the impact of foreign exchange was not significant enough to require further disclosure. |
| Entity | Polymetal International 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 |
Sales of bullion and concentrate We asked the company to provide further details regarding the accounting policies for gold and silver bullion sales and for concentrate sales. We also asked the company to explain how it had accounted for the variability in pricing for both type of sales. The company provided satisfactory answers to our questions and agreed to expand its accounting policy disclosures about the sales of bullion and concentrate. Uncertain tax positions We asked for further information about the company’s uncertain tax position to help us assess the level of disclosure. The company provided satisfactory explanations and agreed to disclose additional information about
Discontinued operations We asked the company to explain why the loss on disposal of Kapan, which was classified as a discontinued operation, was presented within continuing operations in the 2019 income statement. We also asked the company to explain why the loss on the disposal of Khakanja had been similarly presented within continuing operations in the prior year. The company explained that these losses had been incorrectly classified within continuing operations. It agreed to amend the presentation of comparative information in the 2020 report and accounts so as to show the loss on disposal of Kapan within discontinued operations in the consolidated income statement. Sources of estimation uncertainty We enquired about the company’s disclosures under IAS 1 regarding sources of estimation uncertainty. The company agreed to amend the presentation of disclosures about sources of estimation uncertainty such that there is a clear distinction between 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. |
| Entity | PureTech Health 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 |
Lease term reassessment We asked the company to explain why it had reassessed the estimated term of a property lease shortly after entering into it. The lease had been accounted for as a 20-year lease in its 2019 interim report, but as a 10-year lease in the subsequent annual accounts. The company explained that it had reassessed the lease term as it had determined, after the interim accounts were published, that the options to extend the lease term were not reasonably certain to be exercised. The company noted that it had considered the impact of restating the comparative amounts in the 2020 interim report to reflect the reduced lease term, and concluded that the impact was immaterial to the interim report. On this basis, we did not consider further whether the change in lease-term was a correction of an error or a change in estimate. The company agreed to improve disclosure of this change in its subsequent annual report and accounts. We reminded the company that, under paragraph B41 of IFRS 16, ‘Leases’, the term of a lease should be reassessed if there is a significant event or a significant change in circumstances which is within its control and affects whether the lessee is reasonably certain not to exercise an option previously included in the determination of a lease term. Contingencies and commitments We asked the company to explain further the basis for accounting for milestone payments and royalty payments levied on future sales. The company explained that, at the year end, the probability that it would make royalty and milestone payments in the future was low (i.e. remote) for many such payments. The company also explained that the payments are accounted for in accordance with IAS 37, ‘Provisions, Contingent Liabilities and Contingent Assets’, rather than IFRS 9, ‘Financial Instruments’. In its view, the possible milestone and royalty payments are not present but possible obligations, the existence of which will be confirmed by the occurrence or non-occurrence of uncertain future events, not all of which are within the control of the Group. The company agreed to clarify the nature of the milestone and royalty payments and to remove irrelevant information about measurement of potential liabilities from its accounts. |