The Financial Reporting Review Panel ("the Panel") has had under review the report and accounts of Brewin Dolphin Holdings (PLC) ("the company") for the 52 week period ended 30 September 2007.

The Panel’s principal concern related to the company’s practice of not separately recognising customer related intangible assets in the purchase of investment management businesses. IFRS 3 (2004) ‘Business Combinations’ requires an acquirer to recognise intangible assets separately if they meet the definition of an intangible asset in IAS 38 ‘Intangible Assets’ and their fair value can be measured reliably.

In its Pre Closing Trading Update published today the company has announced that it will implement a change of accounting policy in the forthcoming financial statements of the company for the period ended 27 September 2009. Intangible assets representing client relationships will now be recognised separately from goodwill.

As a result, opening reserves at 1 October 2007 will be adjusted to reflect the accumulated amortisation that would have been recognised from the date of transition to IFRS of 25 September 2004 to 30 September 2007. Net assets at 1 October 2007 will be reduced by £2.2m to £113.1m. In the 2009 financial statements, the comparative figures for 2008 will be amended to include a total amortisation charge on intangible assets of £4.2m.

The Panel notes the actions announced by the directors today and, on the basis that the required changes are made in the company’s preliminary results and full published accounts for the financial year to 27 September 2009 regards its enquiry, which commenced on the 16 July 2008, as concluded.

1. The Financial Reporting Council (FRC) is the UK’s independent regulator responsible for promoting confidence in corporate reporting and governance. Its functions are exercised principally by its operating bodies (the Accounting Standards Board, the Auditing Practices Board, the Board for Actuarial Standards, the Financial Reporting Review Panel, the Professional Oversight Board and the Accountancy and Actuarial Discipline Board and by the FRC Board. The Committee on Corporate Governance assists the Board in its work on Corporate Governance.
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 2006 (“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 456 of the Act for an order for revision. To date no court applications have been made.
4. IFRS 3 (2004) requires an acquirer to recognise separately an intangible asset of an acquiree if the asset meets the definition of an intangible asset in IAS 38 ‘Intangible Assets’ and its fair value can be measured reliably.
5. IAS 38 ‘Intangible Assets’ defines an intangible asset as “an identifiable non-monetary asset without physical substance”. The standard goes on to require three criteria to be met for an intangible asset to be recognised. It must be: identifiable, controlled and its fair value must be capable of reliable measurement.
6. An intangible should be identifiable if it is separable (capable of being sold, transferred, licensed, rented or exchanged) either individually or together with a related contract, asset or liability, or alternatively, it arises from contractual or other legal rights, regardless of whether those rights are transferrable or separable from the entity or from other rights and obligations.
7. The illustrative examples to IFRS 3 identify that customer related intangible assets may include: customer lists; customer contracts; customer relationships; non contractual customer relationships. In particular, customer relationships are identified as existing when an entity has a practice of establishing contracts with its customers regardless of whether a contract exists at acquisition date.
8. IAS 38 provides that an entity controls an asset if the entity has the power to obtain the future economic benefits flowing from the underlying resource and to restrict the access of others to those benefits. The capacity of an entity to control the future economic benefits from an intangible asset would normally stem from legal rights that are enforceable at law.
9. IAS 38 states that the fair value of intangible assets acquired in a business combination can normally be measured with sufficient reliability to be separated from goodwill.
10. The Chairman of the Panel is Bill Knight and the Deputy Chairmen, Ian Wright and David Lindsell. There are currently 26 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.
11. All Press enquiries should be directed to Carol Page tel: 020 7492 2460 or at c.page@frc-frrp.org.uk