Company Names Published in June 2021

On 18 March, the Government published a consultation Restoring trust in audit and corporate governance, which contains a number of proposals for enhancing the regulation of corporate reporting. One proposal is to give the regulator a statutory power to publish a summary of its findings of its individual reviews of company reports and accounts.  
 
As an interim step towards greater transparency of its corporate reporting review function, the FRC is publishing summaries of its findings of recently closed substantive reviews.  As, currently, we are subject to existing legal restrictions on disclosing confidential information received from companies, the summaries can only be disclosed with the consent of the relevant companies. These case summaries are presented in the second table below. 
 
The companies listed in the first table are those performed under the Conduct Committee’s previous operating procedures, which did not allow for the publication of case summaries. As a result, no summary has been provided for those cases in which we entered into substantive correspondence. The following key relates to both tables. 

Key 
 
  1. Only a certain number of CRR’s reviews of company reports and accounts result in substantive questioning of the Board. Matters raised may cover questions of recognition, measurement and/or disclosure.
  2. CRR’s routine reviews generally cover all parts of companies’ reports and accounts over which the FRC has statutory powers (that is, strategic reports, directors’ reports and accounts). Limited scope reviews arise for a number of reasons, including those conducted when company reports and accounts are selected for thematic review, and may include reviews that have been prompted by a complaint. In accordance with the Conduct Committee’s operating procedures, CRR does not identify those companies whose reviews were prompted by a complaint.
  3. 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 report and accounts in response to a review
 
Entity Balance Sheet date Exchange of Substantive Correspondence(1) Scope of review (2)
Amerisur Resources Limited 31 December 2018 Yes Full
BigBlu Broadband 30 November 2019 Yes Limited
Ceres Power Holdings plc 30 June 2019 No Full
Downing LLP 31 May 2019 Yes Limited
Easyjet plc 30 September 2019 Yes Limited
St James House plc (3) 31 January 2019 Yes Full

 
In the table below, we list the names of those companies with whom we have recently closed substantive enquiries into their reports and accounts. We indicate whether or not they have consented to publication; where they have, the case summary is provided in an expandable section.
 
We also list the names of those companies whose reports and accounts we have recently reviewed but where we did not raise a substantive enquiry and where, therefore, there are no matters to summarise and consent was not sought. 
Entity
Balance Sheet date
Exchange of Substantive Correspondence (1)
Scope of Review (2)
Consent to Publish Summary
Airtel Africa plc +
31 March 2020
Yes
Full
Yes
Revenue recognised on customer onboarding

We questioned the company’s accounting policy of recognising revenue upfront on customer onboarding. The company explained that this revenue related to the sale of mobile sim cards. As this was not a separate performance obligation, the revenue should have been deferred. However, the company further explained that neither the revenue stream in aggregate, nor the difference between this treatment and that required by IFRS 15 ‘Revenue from Contracts with Customers’, was material. The company undertook to remove this accounting policy from its 2021 annual report and accounts.
 
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Alliance Pharma plc
31 December 2019
Yes
Limited
Yes
This company was selected as part of our 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.

Variable consideration

We asked for information about the variable consideration to which the company may be entitled; particularly relating to rebates and sales-based royalties. The company provided the information requested and agreed to clarify in its 2020 accounts that estimates of variable consideration do not include amounts related to sales-based royalties.

Contract balances

We questioned the company about an amount disclosed as accrued income and enquired about any contract asset or contract liability balances that existed. The company clarified that the accrued income comprised unbilled receivables subject only to the passage of time, rather than a contract asset, and that there were no contract assets or contract liabilities at the year end. The company agreed to provide an accounting policy and explanation for the accrued income balance in its 2020 accounts.
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Ashmore Group plc
30 June 2020
No
Full
N/A
Ashtead Group plc
30 April 2020
No
Full
N/A
AVEVA Group plc
31 March 2020
No
Full
N/A
Balfour Beatty plc
31 December 2019
Yes
Full
Yes
Revenue recognition

We asked the company to provide further information about its accounting treatment applied to claims recoverable from customers and third parties as well as variations to contracts and incentive payments. The company’s response satisfactorily addressed our queries.

Interests in other entities

It was unclear which of the various concession companies had been reflected in the group’s balance sheet through their consolidation and those to which the equity method had been applied. The company enhanced its disclosure in its 2020 accounts by listing the consolidation method for each concession company.

We also asked for further information to help us understand the basis for the company’s accounting for its US military housing projects where it holds a majority interest. The company’s response satisfactorily explained the basis for the directors’ conclusion that it does not control those projects where its shareholding interest is more than 50%.

Judgements and key sources of estimation uncertainty

It was not clear whether there was a significant risk of a material adjustment within the next financial year for all seven matters disclosed where management had made judgements, estimates and assumptions. The company enhanced the disclosure in its 2020 accounts by removing those matters where there is not a significant risk and clarifying whether each matter is a judgement, an estimate, or both.

We also queried whether the company had considered providing quantitative information about the impact of reasonably possible changes in key assumptions, or the range of reasonably possible outcomes within the next year, for any of the seven matters. The company explained the rationale for its disclosure and committed to providing certain quantitative information and sensitivity analysis in future accounts. We also strongly encouraged the directors to consider making further disclosure enhancements to help users gain an understanding of the potential for upward and downward adjustments to revenue, margin and provisions arising from the resolution of estimation uncertainty. We note that the company has provided further information in this regard in its 2020 accounts.

Impairment testing of the parent company’s investment in subsidiaries

We asked how the directors had concluded that the parent company’s investment in subsidiaries was fully recoverable at 31 December 2019. The company’s response satisfactorily addressed our concern.
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Bellway p.l.c.
31 July 2020
No
Full
N/A
BHP Group Plc
30 June 2020
No
Full
N/A
BP p.l.c.
31 December 2019
Yes
Limited
Yes
The company was selected as part of our thematic review into companies’ financial reporting in respect of climate change. As such, only climate-related aspects of the company’s disclosures were reviewed.

Impairment testing

We requested further information about the following matters in respect of the company’s impairment assessments:
  • clarification of which specific assumptions met the ‘estimation uncertainty’ criteria in IAS 1 ‘Presentation of Financial Statements’;
  • the relationship between the impairment assumptions and strategic aims with respect to climate change, as discussed in the company’s narrative reports;
  • the extent to which certain assumptions were consistent with the goals of the Paris agreement; and
  • the relationship between scenarios discussed in the narrative reports and the ‘reasonably possible’ scenarios considered when preparing impairment sensitivity disclosures.
The company provided satisfactory responses in respect of the conditions existing at the 2019 balance sheet date, together with further information about the assumptions and sensitivities that management expected to disclose in the 2020 financial statements. The company stated its intention to explain more clearly the sensitivities to direct impairments of assets in cash generating units, as distinct from the risks of impairment of goodwill.

We also highlighted relevant expectations and best practice for future reporting on these matters, as set out in our November 2020 thematic report.
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BT Group plc
31 March 2020
No
Limited
N/A
Card Factory PLC
31 January 2020
No
Limited
N/A
CLS Holdings plc
31 December 2019
Yes
Full
Yes
Disposal of business

We questioned why the proceeds from the disposal of a business disclosed in the strategic report differed significantly from the equivalent amount included in the cash flow statement.

The company acknowledged that details of the final consideration receivable for the disposal should have been provided in the strategic report. It agreed to include these details in its next annual report and accounts.

We also asked for more information about how the disposal had been reflected in the financial statements. The company provided a satisfactory explanation.
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ContourGlobal plc
31 December 2019
Yes
Full
Yes
Development costs

We asked for further information about the recoverability of development costs capitalised in respect of a project in Kosovo and the basis for their reclassification as a non-current asset in the company’s June 2020 interim financial statements.

The company provided a satisfactory explanation and agreed to include additional disclosure in its 2020 annual accounts in respect of the transactions and amounts recognised.

Business combinations

We questioned the company about the method used to determine the fair value of the identifiable assets, assumed and liabilities acquired, in respect of its acquisition in Mexico.

The company provided a satisfactory analysis and explained that, for an acquisition of this type, no significant goodwill was expected. Additionally, as there were no indicators of overpayment for the transaction, the fair value of the identifiable assets assumed and liabilities acquired equalled the fair value of the consideration.

The company also agreed to clarify the sensitivity disclosures provided in respect of the carrying values of the separate intangibles recognised on the acquisition.

De-recognition of borrowings

We requested further information to explain the accounting for the transfer of project financing debt following the sale of a non-controlling interest.

The company confirmed that the transfer of the project financing debt was accounted for as a de-recognition event in accordance with IFRS 9 'Financial Instruments', with no material gain or loss on de-recognition.

Non-controlling interests (‘NCIs’)

We asked for more information to explain cash payments to NCI and cash receipts from NCIs in the statement of cash flows.

The company provided satisfactory explanations and agreed to provide additional disclosure to explain the nature of both cash flows.

We also asked the company to explain why summarised financial information for subsidiaries with material NCIs was not disclosed. The company provided this for 2019 and agreed to include the additional disclosure, as required by paragraph 12 of IFRS 12 'Disclosure of Interests in Other Entities' in its future annual accounts.

Alternative performance measures (‘APMs’)

We asked the company to explain how it had met the requirements of the ESMA Guidelines on APMs in respect of its adjusted EBITDA measure and to provide more information to explain a reconciling item included in the reconciliation to the relevant IFRS number.

The company provided a satisfactory explanation, and agreed to amend the definition of its adjusted EBITDA measure to clarify that the inclusion of the cash gain on disposal of the NCI was included as well as 100% of the results of the related subsidiary. The company also agreed to include additional disclosures in respect of reconciling items included in the APM reconciliations.
 
Emission quotas

We questioned the company’s presentation of emission quotas as inventory, which the company satisfactorily explained.
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Co-operative Group Limited (3)
04 January 2020
Yes
Full
Yes
Revenue recognition for prepaid funeral plans
 
We asked the company for information about the judgement disclosed in relation to revenue recognition for prepaid funeral plans, which was the subject of a qualified audit opinion. We questioned its basis for concluding that the proceeds from whole of life insurance policies, in which payments from customers were invested, represented variable consideration from a contract with a customer. We also asked the company to explain the basis for recognising fair value gains and losses on revaluing these insurance policies as changes to deferred revenue; that is, on the balance sheet rather than in the income statement.
 
Following correspondence and discussions with the company, it agreed to change its treatment. Under the revised policy it recognises fair value movements on life insurance policies in the income statement, as required by IFRS 9 ‘Financial Instruments’. The company now treats the amounts initially received from customers as revenue, in accordance with IFRS 15 ‘Revenue from Contracts with Customers’. As these amounts are received in advance of the performance of the funeral, it defers the revenue and increases this liability by recognising an effective interest charge in the income statement until the plan is redeemed.
 
In accordance with IAS 8 ‘Accounting, policies, Changes in Accounting Estimates and Errors’, the company has accounted for this change as a prior period adjustment in the next annual report and accounts, with a restatement of comparative figures. As the change affected a primary statement, we asked the company to disclose the fact that the matter had come to its attention as a result of our enquiry. 
 
Consolidation of the Reclaim Fund
 
We asked the company for further information about the judgement it disclosed in relation to the consolidation of the Reclaim Fund. The company had been in the process of reconsidering the extent to which it had power over the Reclaim Fund, and its exposure or rights to any variable returns from its investment in the Fund.
 
Following discussions with the company, it concluded that it had neither power over, nor exposure or rights to, variable returns from the Reclaim Fund and agreed to deconsolidate it. The company agreed to restate the comparative amounts in its next annual report to reflect this revised accounting policy and to refer to the FRC’s involvement in this decision as described above.
 
Alternative performance measures
 
The company’s annual report described underlying profit before tax, an APM, as giving a ‘truer’ measure of performance than reported profit.
 
We explained that APMs should not be given more authority than their IFRS equivalents. The company has agreed to reflect this in its future annual reports.
 
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Countrywide Plc
31 December 2019
Yes
Full
Yes
Provisions and contingencies

We questioned why possible litigation and regulatory enforcement actions that had been identified in a prospectus issued by the company in August 2018, were not disclosed in the 2018 or 2019 annual reports. The company provided details of these matters and explained why, under the requirements of IAS 37 ‘Provisions, Contingent Liabilities and Contingent Assets’, no provision or disclosure was required.
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Cranswick plc
28 March 2020
Yes
Full
Yes
Repayment of borrowings in the cash flow statement

We asked for further information about a cash outflow from the repayment of borrowings disclosed in the cashflow statement. In addition, we asked for an explanation as to how this outflow was reflected in the analysis of net debt and, if relevant, where the borrowings were recognised in the prior year statement of financial position.

The company explained that the amounts arose during the financial year as a result of acquisitions, and were repaid immediately following the acquisitions. The company agreed to separately identify this type of transaction in the net debt reconciliation in future annual reports and accounts, where relevant.

Defined benefit pension asset

The company had recognised a pension scheme asset, which was restricted by the ‘asset ceiling’ test. We asked the company to confirm whether the directors expected to realise the economic benefit of the surplus from a refund, a reduction in future contributions or a combination of both.

The company agreed to augment the defined benefit pension asset disclosures in the next annual report and accounts to explain the trustees’ rights on winding up the relevant schemes and the basis for concluding that the company had a right to a refund of any surplus. Additionally, the company explained that the IAS 19, ‘Employee Benefits’, surplus should have been recognised in full, without restriction, but that the effect of the misstatement was immaterial.

Fair values of biological assets

We asked the company about the growth and mortality rate assumptions used in its fair value measurements of biological assets. We asked for an explanation as to whether these rates were significant and unobservable inputs and, therefore, whether biological assets should be classified within Level 3 of the fair value hierarchy.

The company’s response addressed the questions that we had raised and concluded that its biological assets should be classified as Level 2. The company committed to describing the change of those assets previously categorised as Level 1 as a restatement and clarifying the wording in future annual reports and accounts where references to the basis of valuation and assumptions are made.

Movements in working capital balances

We asked for an explanation of the large increases in trade and other receivables, and trade and other payables disclosed in the statement of cash flows.

The company explained the movements and agreed that additional disclosure would be provided in future annual reports and accounts for key balance sheet movements, where an explanation would assist the reader's understanding of the Group's financial position.
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Ferguson plc
31 July 2020
No
Full
N/A
Ferrexpo plc
31 December 2019
Yes
Full
Yes
Going concern

In its published 2019 annual financial statements, the company disclosed an arrest order from a Ukrainian court over the parent company’s shares in a significant subsidiary. As a result of this disclosure, and additional information provided to us by the FRC’s Audit Quality Review Team, we asked the company for further information about the basis for management’s conclusions that that there were no material uncertainties to disclose in relation to the ability of the company to continue to operate as a going concern, and that the classification of certain borrowings as non-current liabilities was appropriate. We also asked whether management had made a significant judgement in either of these respects.

The company explained that it had taken legal advice, and believed that there was no material uncertainty to disclose in respect of the company’s ability to continue to operate as a going concern; that the classification of the borrowings as non-current was appropriate; and that no significant judgement was applied in these respects.

We considered whether it would be appropriate to seek further verification from the company on these points. However, as the arrest order had subsequently been cancelled, we did not consider it proportionate to pursue the matter further.
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Fidelity Special Values PLC
31 August 2020
No
Full
N/A
Finsbury Growth & Income Trust PLC
30 September 2020
No
Full
N/A
Fuller Smith & Turner P.L.C
28 March 2020
No
Limited
N/A
Glencore plc
31 December 2019
Yes
Full
Yes
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.
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Great Portland Estates plc (3)
31 March 2020
Yes
Full
Yes
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.
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Hilton Food Group plc (3)
29 December 2019
Yes
Full
Yes
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.
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IG Group Holdings plc
31 May 2020
No
Full
N/A
IWG plc (3)
31 December 2019
Yes
Limited
Yes
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.
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J Sainsbury plc
07 March 2020
Yes
Full
Yes
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.
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James Fisher and Sons plc
31 December 2019
Yes
Full
Yes
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.
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Jet2 plc
31 March 2020
No
Full
N/A
Kainos Group plc
31 March 2020
Yes
Full
Yes
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.
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Land Securities Group PLC
31 March 2020
No
Full
N/A
McBride plc
30 June 2020
No
Full
N/A
Mears Group PLC
31 December 2019
Yes
Full
Yes
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.
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Melrose Industries PLC
31 December 2019
No
Limited
N/A
Mirriad Advertising plc
31 December 2019
Yes
Limited
Yes
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:
  • whether revenue was recognised at a point in time or over time, and the basis for this conclusion;
  • when the company typically receives payment from customers;
  • whether the company had any contract balances in addition to accrued income; and
  • whether framework agreements were considered to constitute an IFRS 15 contract.
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.
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Mitie Group plc
31 March 2020
No
Full
N/A
MoneySupermarket.com Group Plc
31 December 2020
No
Full
N/A
Mountview Estates P.L.C.
31 March 2020
No
Full
N/A
National Grid plc
31 March 2020
Yes
Full
Yes
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.
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Nationwide Building Society
04 April 2020
No
Full
N/A
NextEnergy Solar Fund Limited
31 March 2020
Yes
Full
Yes
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.
 
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Nichols plc
31 December 2019
Yes
Full
Yes
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.
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Polymetal International plc
31 December 2019
Yes
Full
Yes
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
  • the nature of uncertain tax positions;
  • the cause for any material changes in the amounts disclosed;
  • the possible timing for the resolution of matters identified; and
  • whether the Group is involved in any material tax litigation during the year and provide details where relevant.
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.
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PureTech Health PLC
31 December 2019
Yes
Full
Yes
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.
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Royal Dutch Shell plc
31 December 2019
Yes
Limited
Yes
The company was selected as part of our thematic reviews into companies’ financial reporting in respect of climate change and the application of IFRS 16 ‘Leases’. As such, only disclosures relating to leases or climate-related aspects of the company’s reporting were reviewed. We did not ask any substantive questions in respect of leasing.

Impairment testing

We asked for further information about the following matters in respect of the company’s impairment assessments:
  • clarification of which specific assumptions met the ‘estimation uncertainty’ criteria in IAS 1 ‘Presentation of Financial Statements’, and why sensitivity disclosures had not been provided;
  • the relationship between the impairment assumptions and the company’s decarbonisation efforts, as discussed in its narrative reports;
  • the relationship between scenarios discussed in the narrative reports and ‘reasonably possible’ scenarios considered when preparing impairment sensitivity disclosures.
The company confirmed that oil and gas prices met the criteria in IAS 1, and provided undertakings to clarify which assumptions meet the criteria and to disclose sensitivities for commodity prices and other assumptions, where required, in its 2020 financial statements. The company provided satisfactory responses in respect of the other matters.

We also highlighted relevant expectations and best practice for future reporting on these matters, as set out in our November 2020 thematic report.

Deferred tax

We requested clarification of how climate change uncertainties had been incorporated into the company’s assessment of the recoverability of deferred tax assets. The company provided a satisfactory response.

Decommissioning liabilities

We asked for further information about the following matters in respect of decommissioning and restoration (D&R) liabilities:
  • whether the discount rate and timing assumptions met the ‘estimation uncertainty’ criteria in IAS 1, and why sensitivity disclosures had not been provided;
  • how climate change uncertainties had been considered, particularly in respect of the timing of decommissioning; and
  • the basis for non-recognition of certain downstream D&R liabilities.
The company confirmed that the discount rate met the criteria in IAS 1, and provided an undertaking to disclose sensitivities to changes in the rate in its future accounts. The company stated its intention to review the D&R provision policy in 2020 in response to operational changes. We highlighted that the basis for non-recognition of certain liabilities may involve a judgement requiring disclosure under IAS 1. We were satisfied with the company’s response on these matters.
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Signature Aviation plc
31 December 2019
Yes
Limited
No
SolGold Plc
30 June 2020
No
Full
N/A
Tate & Lyle PLC
31 March 2020
No
Limited
N/A
The British United Provident Association Limited
30 June 2020
Yes
Limited
Yes
Claims reserving policy

We asked the company for further details of its accounting policy for claims reserving. This was in the light of an additional provision established at 30 June 2020 for the cost of treatments deferred as a result of COVID-19 related lockdowns and disruption to healthcare services that were ultimately still expected to be provided.

The company provided a satisfactory explanation of the accounting adopted and agreed to enhance the disclosures in its next set of accounts to make this clearer.

Return of exceptional profits

We also asked for details of the accounting for a public commitment made to pass any exceptional financial benefit ultimately arising from COVID-19 onto UK health insurance customers.

The company provided a satisfactory explanation of this and agreed to provide further disclosures in its next annual report and accounts of the amount, basis of calculation and presentation of the resulting provision, as well as any key assumptions and sensitivities.
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Tullow Oil plc
31 December 2019
Yes
Full
Yes
Going concern disclosures

We were not able to locate, in the accounts, certain of the disclosures required by IAS 1, ‘Presentation of Financial Statements’ when a company identifies material uncertainties about its ability to continue as a going concern. The company agreed to include the disclosures within its accounts in the future, if they remain relevant.

Loan covenants

We asked the company for further information about its main loan covenants, and the performance against those covenants in the period.

The company explained the nature of the main covenants under their Reserve Based Lending facility, and their performance against those covenants. The company agreed to include enhanced disclosures about its main borrowing covenants in its next annual report and accounts.

Uncertain tax and regulatory positions

The company identified uncertain tax and regulatory positions as a key source of estimation uncertainty. We asked the company for further information about the nature of the amounts provided, and drew its attention to certain of the disclosure requirements of IAS 1 in relation to major sources of estimation uncertainty.

The company responded satisfactorily to our questions, and agreed to provide additional information about these sources of estimation uncertainty.

Critical accounting judgements

The company disclosed a critical accounting judgement in relation to certain joint venture leases. We asked the company to explain the judgement involved, and to provide some further information about the leases in question.

The company satisfactorily explained the nature of the judgement. The company also agreed to enhance the disclosure, if applicable, in future periods, to clarify that the judgement relates to accounting for the lease as a short-term lease, consistent with the principles of paragraph 6 of IFRS 16, ‘Leases’.
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United Utilities Group PLC
31 March 2020
Yes
Full
Yes
Grants and contributions received

We questioned the company’s basis for classifying grants and customer contributions received as investing activities within the statement of cash flows. The company explained that they believed this presentation was more meaningful to the users of accounts. We acknowledged that there was diversity in practice with some companies presenting these receipts as investing cash inflows and other companies recognising them as part of their operating activities, and that this may involve a degree of judgement. The company agreed to disclose the nature of this judgement and its effect on the cash flow statement in future accounts.

Additions to property, plant and equipment

We asked the company to explain the difference between the cash outflows in relation to the purchase of property, plant and equipment in the cash flow statement and amounts presented in the notes. The company explained the differences and agreed to provide additional information in future accounts.
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Watches of Switzerland Group PLC
26 April 2020
No
Full
N/A
Wincanton plc
31 March 2020
Yes
Full
Yes
Revenue recognition

We asked the company to provide further details of the accounting applied to extensions and modifications of customer contracts.

The company explained that the contract renewals entered into during the year resulted in the group providing additional distinct services at a stand-alone price. As such, they were accounted for as separate contracts in accordance with IFRS 15, ‘Revenue from Contracts with Customers’.

In the light of our comments, the company agreed to consider the accounting policy disclosures in respect of contract modifications when preparing its 2021 annual report and accounts.

Cash and cash equivalents

We asked the company to explain why restricted cash met the criteria to be classified as cash and cash equivalents, as the notes to the accounts indicated that the cash and cash equivalents included deposits that had a mix of maturities, none of which were greater than 12 months. IAS 7 ‘Statement of Cash Flows’ notes that an investment only normally qualifies as a cash and cash equivalent when it has a short maturity of three months or less from the date of acquisition.

The company explained that most of the deposits held were repayable on demand, or had a maximum notice period of 32 days, and so were appropriately classified as cash and cash equivalents.

As a result of our letter, the company identified one deposit that was incorrectly classified as cash and cash equivalents as the deposit had an original maturity date of 12 months and no early termination option. However, it concluded that the effect of this error was not material and did not propose correcting it in its 2021 annual report and accounts.

The company agreed to carefully consider the specific terms of any future deposits made to ensure that fixed term deposits are classified and presented correctly in the financial statements.
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Workspace Group PLC
31 March 2020
Yes
Limited
Yes
This company was selected as part of our thematic review of financial reporting effects of Covid-19 and, as such, only the disclosures of the impact of the pandemic were considered.

Occupancy assumptions underlying the fair valuation of the investment properties

The company’s accounts highlighted the valuation of its investment properties as an area of material estimation uncertainty. The disclosure and sensitivity analysis of key unobservable inputs, underlying the fair valuation of the investment properties, did not feature occupancy although it was identified as a key performance indicator and a key assumption in the viability and going concern assessments.

We asked the company whether the occupancy assumptions represented a major source of estimation uncertainty. The company explained why they do not consider this to be the case. We encouraged the company to include the explanation in its future report and accounts.
 
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