Panel Concludes Enquiry on Royal Bank of Scotland Accounting for Joint Venture

The Financial Reporting Review Panel (the Panel) has had under consideration the report and accounts of The Royal Bank of Scotland (RBS) for the five years ended 31 December 2004.

The matter at issue was the accounting for Tesco Personal Finance Group Limited (TPFG) which RBS fully consolidated in its group accounts as a subsidiary throughout the period under review.

The Panel is of the view that, although RBS owns the majority of the voting shares, TPFG fulfills the definition of a joint venture as set out in Financial Reporting Standard (FRS) 9, ‘Associates and joint ventures’ and should therefore have been accounted for using the gross equity method throughout the period under review.

International financial reporting standards will apply to RBS for future accounting periods and as TPFG qualifies as a joint venture under IFRS, the company will be accounted for as such, using proportionate consolidation, in future sets of accounts.

In the light of RBS’ announcement today, showing the effect of accounting for TPFG for 2004 under the gross equity method and under proportionate consolidation the Panel considers its enquiry, which commenced on 6 July 2004, as concluded.

Notes to Editors

1. The Financial Reporting Review Panel (FRRP) is part of the Financial Reporting Council (FRC), whose mission is to promote confidence in corporate reporting and governance. The FRC has five operating bodies; the Accounting Standards Board, the Auditing Practices Board, the Financial Reporting Review Panel, the Accountancy Investigation and Discipline Board and the Professional Oversight Board for Accountancy.
2. The role of the Panel is to examine the annual accounts of public and large private companies to see whether they comply with the requirements of the Companies Act 1985 (‘the Act’), including applicable accounting standards. Following implementation of the Accounting Regulation (EC) No. 1606/2002, this may mean compliance with UK or International Financial Reporting Standards.
3. Where breaches of the Act are discovered the Panel seeks to take corrective action that is proportionate to the nature and effect of the defects, taking account of market and user needs. Where a company’s accounts are defective in a material respect the Panel will, wherever possible, try to secure their revision by voluntary means, but if this approach fails the Panel is empowered to make an application to the court under section 245B of the Companies Act 1985 for a order for revision. To date no court applications have been made.
4. On 6th April, the Panel published revised Operating Procedures to reflect changes in its remit and powers arising from implementation of the Companies (Audit, Investigations and Community Enterprise) Act 2004.
5. The Chairman of the Panel is Bill Knight and the Deputy Chairman Ian Brindle FCA. There are currently 22 other Panel members drawn from a broad spectrum of commerce and the professions. Individual cases are normally dealt with by specially constituted Groups of 5 or more members.
6. All Press enquiries should be directed to: Carol Page on Tel: 0207 492 2460 or email: c.page@frc-frrp.org.uk

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