Company Names Published in September 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)
Royal Mail plc 31 March 2019 Yes Full
RSM UK Holdings Limited 31 March 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
Anexo Group Plc (3)
31 December 2019
Yes
Limited
Yes
This company was part of our thematic review of cash flow and liquidity disclosures and, as such, only the disclosures relating to the cash flow statement and liquidity were reviewed.

Invoice discounting facility in the cash flow statement

We asked the company why an invoice discounting facility was included within cash and cash equivalents in the cash flow statement as the balance did not appear to fluctuate between negative and positive. The company acknowledged that the invoice discounting facility did not meet the criteria for classification as cash and cash equivalents, and agreed to restate the comparatives in its next report and accounts to present the cash flows from the facility within financing activities.

New lease arrangements

The statement of cash flows presented a cash inflow within financing activities, in relation to new leases. We asked the company to explain this presentation because cash flows would not usually arise on the inception of a lease. The company acknowledged that the cash flow statement had been incorrectly grossed up for a non-cash transaction. The company agreed to restate the comparatives in its next report and accounts to remove the gross up associated with leases. The company also agreed to present cash flows associated with hire purchase leases and other leases within a single line in the statement of cash flows.

As the changes to both the composition of cash and cash equivalents, and the presentation of cash flows from leases 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.
 
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Anglo American plc
31 December 2020
No
Full
N/A
ASOS Plc
31 August 2020
Yes
Full
Yes
Revenue recognition

We asked the company to provide further details in respect of the revenue recognition accounting policy applied to brand and collaboration sales and delivery receipts. In particular, we enquired about the basis on which the company acted as principal in these arrangements. The company provided satisfactory explanations and undertook to enhance the revenue recognition disclosures in its 2021 report and accounts.

We also requested details of the way in which sales returns are recognised and measured. The company provided these details and agreed to expand the disclosures in this area in its 2021 reports and accounts.

Significant estimates and judgements

We queried whether all the accounting estimates identified in the 2020 report and accounts gave rise to a significant risk of material adjustment to the carrying value of an asset or liability in the next financial year. We also asked the company to explain how it considered the accounts met the requirements of IAS 1 ‘Presentation of Financial Statements’ paragraphs 125 and 129.

The company confirmed that all the accounting estimates identified in the 2020 annual report and accounts gave rise to a significant risk of material adjustment in the next financial year. The company also agreed to enhance the estimation uncertainty disclosures in future reports and accounts.
 
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Aviva plc
31 December 2020
Yes
Full
N/A
Beazley plc
31 December 2020
No
Full
N/A
BlackRock World Mining Trust plc
31 December 2020
Yes
Full
Yes
Disclosure of significant unobservable inputs used in Level 3 fair value measurements

We asked the company why quantitative information about the significant unobservable inputs used in Level 3 fair value measurements, as required by IFRS 13 ‘Fair Value Measurement’, had not been disclosed. The company agreed to provide the disclosure in its future accounts.
 
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Centrica plc
31 December 2020
No
Limited
N/A
Chemring Group PLC
31 October 2020
Yes
Full
Yes
Defined benefit pension scheme

We questioned the company’s description of its defined benefit pension scheme as a multi-employer plan. The company clarified that the scheme was a group plan rather than a multi-employer plan and undertook to amend the description in its 2021 accounts. We asked for further information about the basis for accounting for the scheme in the parent company and were satisfied with the company’s explanation.

Key management personnel

We asked the company to explain how it had determined that the members of the Executive Committee who were not directors were also not key management personnel. The company provided the explanation requested and undertook to ensure that its description of the Executive Committee in its 2021 annual report was aligned to the committee’s terms of reference.

Tax impact of non-underlying items

We sought an explanation for the fluctuation in the tax rate on non-underlying items between 2019 and 2020 as the reason for the inconsistent rate was unclear, particularly given that the non-underlying items were predominantly the same in each year. We were satisfied with the company’s explanation and its undertaking to enhance its disclosures about the tax on non-underlying items in future accounts, when necessary, to provide users with a better understanding of the balance.
 
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City of London Investment Group PLC (3)
30 June 2020
Yes
Full
Yes
Lawfulness of dividends and share repurchases

We observed that over a number of years, the company’s dividends and share repurchases exceeded retained earnings and other reserves available for distribution as shown in the annual accounts. No interim accounts were filed at Companies House to support the distributions, as required by section 836(2)(a) of the Companies Act 2006 (the Act). We asked how the directors were satisfied that the distributions were lawful.

The company acknowledged that its historical distributions did not comply with the requirements of the Act, and explained the steps that it intended to take to rectify the situation. We closed the matter on the basis that the company had taken legal advice and satisfactorily explained how it intended to rectify the unlawful distributions.

Cash flow statement - classification of acquisition-related expenses

We questioned why acquisition-related expenses of £1,248k were classified as investing activities, rather than as operating activities in the cash flow statement. The company acknowledged that it was not appropriate to classify the amounts as investing cash flows because paragraph 16 of IAS 7, ‘Statement of Cash Flows’, explains that only expenditures relating to amounts recognised as assets in the statement of financial position can be classified as investing activities. It agreed to restate the comparative cash flow statement in its next accounts to classify the amounts as operating cash flows.

Consolidation of the International REIT fund

Disclosures in the report and accounts indicated that the company’s investment in the International REIT fund was consolidated on a net asset basis. It was unclear how the method of consolidation complied with IFRS 10, ‘Consolidated Financial Statements’.

The company confirmed that the International REIT fund was consolidated on a line-by-line basis, as required by paragraph B86 of IFRS 10, and agreed to clarify its disclosures in future accounts.

Nature of interest in the EM REIT fund

The company disclosed that it had stopped consolidating its EM REIT fund after a substantial investment in the fund by a client, which reduced the company’s holding to 21%. We asked the directors to explain why the company does not control or have significant influence over the fund.

We were satisfied with the company’s analysis that it did not control the fund, and with its basis for concluding that the control assessment did not require significant judgement. The company also provided a satisfactory analysis to support its conclusion that it did not have significant influence and committed to disclosing the matter as a significant judgement in its next accounts.
 
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Compass Group Plc
30 September 2020
Yes
Full
Yes
Offset of bank overdrafts and cash and cash equivalents

We asked for clarification of the basis on which bank overdrafts have been offset against cash and cash equivalent balances in a ‘multi-currency notional pooling cash management arrangement’. The company provided a satisfactory explanation for the treatment adopted and agreed to clarify disclosures in its next annual report and accounts, including the existence of cash sweeps soon after the reporting date.

Contract fulfilment assets

We sought to understand better the nature of and accounting treatment adopted for contributions towards service assets, such as kitchen and restaurant fit out costs and equipment, which the group uses in the performance of its obligations in its contracts with clients. These contributions are capitalised as contract fulfilment assets in the balance sheet and presented as investing cash flows in the cash flow statement.

The company provided further information about these contributions and the basis for the accounting treatment adopted. We did not consider it proportionate to pursue the balance sheet and income statement presentation of the relevant amounts further, as the effect of any alternative treatment would have been immaterial. The company agreed to include the presentation of cash flows arising on the acquisition of contract fulfilment assets as a significant judgement in the company’s annual report and accounts for the year ending 30 September 2021.
 
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Countryside Properties plc
30 September 2020
Yes
Limited
Yes
Auditor appointment and length of tenure

We asked the company to explain how the directors had determined the auditor’s length of tenure prior to recommending to members that PricewaterhouseCoopers LLP (‘PwC’) be re­appointed at the 2020 AGM.

The company’s response satisfactorily addressed our concern. We note that the 2020 annual report explains that PwC will not be invited to participate in the tender process for the September 2022 audit.
 
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Craneware plc
30 June 2020
Yes
Full
Yes
Share-based payments

We questioned the difference between the total share-based payments charge and the related movement included in the statement of changes in equity. The company explained that the main difference related to the employer national insurance contributions, which met the definition of cash-settled share-based transactions. The associated obligation was recognised within ‘other reserves’ in equity. It should, however, have been included within liabilities on the balance sheet, as required by IFRS 2 ‘Share-based Payment’. The company further explained that the effect of reclassifying this amount would not currently be material but agreed to keep this area under review.

In closing this matter, we drew the company’s attention to the fact that, as cash-settled share-based payment obligations should not be a component of equity, we would not expect the related cash flows to meet the definition of cash flows from financing activities.

We also asked the company to explain the difference between the cash inflows relating to the proceeds from the issuance of shares and the related amounts included in the statement of changes in equity. The company satisfactorily explained the differences and agreed to improve the relevant disclosures in future accounts.

Shares purchased by the Employee Benefit Trust

We questioned the cash outflows in relation to the shares purchased by the Employee Benefit Trust (‘EBT’) as the amounts shown in the Consolidated cash flow statement differed from those included in the narrative within the notes. The company explained that there was a difference in relation to the funds transferred to the EBT for which the share purchase was not completed in the year. It further explained that this amount should not have been treated as a cash outflow for the group as the EBT was consolidated. There was a corresponding understatement in the amounts of cash and cash equivalents, and equity in the statement of financial position.The company explained that the error was not material. It undertook to disclose the accounting policies in relation to its transactions with the EBT and to correct the cash flow presentation of such amounts in future parent company and consolidated accounts.

Tax disclosures

We asked the company to explain items included within the reconciliation of the tax charge to accounting profit described as ‘tax deduction in relation to share plan charges’ and ‘origination and reversal of temporary differences’. The company clarified the nature of the items and agreed to improve their presentation and description in future reconciliations.
 
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DWF Group PLC
30 April 2020
Yes
Full
Yes
Discontinued operations

We questioned the company’s classification of an office closure as a discontinued operation. The company explained that the office operated as a separate geographic area and was considered ‘major’ by reference to its material effect on the group’s results. The company agreed to include disclosure, where relevant to future accounts, about the judgement exercised in determining whether a geographical area of operations (or line of business) is both separate and major.

Revenue recognition

We asked the company to clarify its use of the terms ‘revenue’ and ‘net revenue’. The company agreed to clarify that ‘net revenue’ is an alternative performance measure, to refer to it consistently as such and to use ‘revenue’ only when referring to the IFRS measure, in future annual reports and accounts. The company also undertook to include commentary on the characteristics of its revenue and recoverable expenses in the narrative on trading performance.

We sought explanations of: the company’s principal types of performance obligations, the timing of their satisfaction, the method(s) used for measuring progress towards satisfying performance obligations over time and the nature of variable consideration receivable. We considered the information and explanations the company provided, and observed that users would benefit from more specific descriptions of the extent of variability within contracts and of how the company applies the constraint on variable consideration. The company also agreed to remove disclosure relating to combining contracts, on the basis that the relevant contracts are neither individually nor collectively material.

Impairment of goodwill and investment in subsidiaries

We asked the company to explain the basis on which it allocated goodwill to cash generating units and tested it for impairment. The company confirmed that the only individually significant amount of goodwill allocated was to the ‘Managed Services’ practice group, which, at the balance sheet date, was within the Commercial Services division. The company undertook to clarify in its next annual report and accounts when the term ‘Managed Services’ was being used to refer to the practice group or the services themselves.

We also asked for clarification of the testing performed on the carrying amount of the parent company’s investment in subsidiaries. The company confirmed that it had identified indicators of impairment, prompting a test for impairment, and that the recoverable amount of the investment, calculated on a ‘value in use’ basis, exceeded the carrying amount. It volunteered to enhance its disclosures of these matters.

Share-based payment expenses

We requested an analysis of share-based payment expenses, which the company provided with satisfactory explanations of individual components.

Supplier financing arrangements

We asked the company to clarify disclosures about a supplier payment facility, including its treatment of related cash flows as arising from financing activities. The company provided a satisfactory explanation. The company agreed to disclose, in future accounts, the 'non-cash' changes in the level of borrowing under the facility in accordance with paragraphs 44A to 44E of IAS 7 ‘Statement of Cash Flows’. We encouraged the company to disclose a description of the arrangement, given the level of interest among users of accounts in supplier payment arrangements.
 
Professional indemnity provision

We questioned the presentation within ‘other payables’ of a liability arising from professional indemnity claims that appeared to have characteristics of a provision. The company explained that an amount that is subject to uncertainty relating to disputed claims had become material in the period. It agreed to restate the balances for ‘other payables’ and provisions to reclassify that amount in its next annual report and accounts.
 
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Eden Research plc (3)
31 December 2019
Yes
Limited
Yes
Transactions with associate

We asked for more information about the group’s sale of geraniol to its associate and the group’s acquisition of an intangible asset from the associate. We also queried the existence of, and accounting for, any unrealised gain or loss (in applying the equity method) arising from such transactions.

The company explained that it had reconsidered the guidance in IFRS 15 'Revenue from Contracts with Customers' in relation to its arrangement with the associate for the sale of geraniol. As a result, the company acknowledged that the group accounts (in addition to recognising the group’s share of the result of the associate through the normal equity accounting) should have recognised revenue based upon the margin it was entitled to receive from the associate’s sale of geraniol instead of on a gross basis. Consequently, the company agreed to restate comparative amounts in the following year’s income statement accordingly. 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.

The company provided a satisfactory explanation in respect of the purchase of the intangible asset. The company also acknowledged that there was a gain on the sale of the intangible asset by the associate for which its share had not been eliminated when preparing the group accounts, but explained that the adjustment was considered immaterial.

Impairment review of investment in associate

We requested information about the impairment review performed for the company’s investment in its associate, Terpene Tech (UK). The company provided a satisfactory analysis of the assessment performed. The company agreed to enhance the disclosure in respect of the impairment review in future annual accounts, including an improved analysis of the key assumptions made.

Investment in subsidiary

We asked the company to clarify its judgement made in determining that the company controls Terpene Tech (Ireland). The company provided a satisfactory explanation and agreed to improve the disclosure in future annual accounts to more clearly explain the basis for its conclusion.
 
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Euromoney Institutional Investor PLC
30 September 2020
No
Full
N/A
Foresight Solar Fund Limited
31 December 2020
No
Full
N/A
Future plc
30 September 2020
Yes
Full
Yes
Acquired intangible assets

We asked the company for information to assist us in understanding the nature of acquired intangible assets. In particular, we asked for an analysis of the carrying value and useful economic lives for each class of acquired intangible asset, and details of any such assets which were individually material. The company provided a satisfactory response and committed to enhance the related disclosures in its future reports and accounts where the information remained material and relevant.
 
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GCP Student Living plc
30 June 2020
No
Full
N/A
GlaxoSmithKline Plc
31 December 2020
No
Full
N/A
Halfords Group plc
03 April 2020
Yes
Full
Yes
Cash flow relating to leases

We asked the company to provide clarification of an apparent inconsistency in the disclosure of cash outflows on leases in the cash flow statement. The company explained that during the preparation of its subsequent interim accounts for the six months ending 2 October 2020, it had identified an error in presentation of the interest on lease liabilities, which explained this inconsistency. The resulting restatement of amounts for the period to 3 April 2020 was disclosed in the interim report to 2 October 2020.

Classification of provisions for closure costs

We questioned the company’s approach to correcting a misclassification of provisions for costs relating to the closure of Cycle Republic stores in the 3 April 2020 balance sheet. The company explained that it planned to record a current year reclassification from trade and other payables to provisions in FY21 to correct the misclassification. The company agreed to provide additional explanatory disclosure making it clear that the reclassification corrected an error in the prior year, identifying relevant line items in the statement of financial position affected by it, and explaining any significant judgements exercised in concluding that the error was not material.

We were not fully persuaded by the company’s arguments for not restating prior period comparatives, but did not consider it proportionate to pursue this further.

Impairment testing sensitivity analysis

We asked the company for more information about its sensitivity testing of the estimated recoverable amount of the Retail group of cash generating units (‘CGU’). We considered the information and explanations the company provided about its approach, which was based on downside scenarios developed for the assessment of going concern and viability. The company agreed to provide additional disclosure of how those assessments had been extended to a five-year period and the basis on which the company concluded that no reasonable change in long term growth rate or discount rate would reduce the recoverable amount of the CGU to its carrying amount.
 
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Hays plc
30 June 2020
Yes
Full
Yes
Receivables

We questioned why no quantitative information about the provision matrix used to measure expected credit losses (‘ECLs’) for receivable balances had been provided and why no sensitivity information was disclosed despite the ECL provision being identified as a significant estimate. The company agreed to include these disclosures in its future reporting, including details of the range and impact of the assumptions used.

We also asked the company why the ECL analysis in the receivables note did not refer to the accrued income balance of £301.5 million. It agreed to be more explicit in its future reporting that the ECL provision applied to both trade receivables and accrued income, and to demonstrate how the provision is apportioned between those two balances.

Leases

We asked for more information about the judgements made in relation to the transition adjustment for extension and termination options in leases, which resulted in the recognition of significant additional liabilities on the initial application of IFRS 16 ‘Leases’ on 1 July 2019. We also asked for details of the basis on which management concluded that these were not significant judgements required to be disclosed by IAS 1 ‘Presentation of Financial Statements’.

The company provided a satisfactory explanation and acknowledged that the rationale and basis of this adjustment could have been explained more clearly.

Goodwill

We questioned the company’s disclosures relating to the sensitivity of the goodwill impairment testing calculations to changes in assumptions. The company committed to distinguish clearly the disclosure of reasonably possible changes in key assumptions that could lead to an impairment (made to satisfy the requirements of IAS 36 ‘Impairment of Assets’) from any additional voluntary disclosures made to inform the reader, in its future accounts.

We also asked whether the cash flows arising from future investment, referred to in the goodwill disclosures, were excluded from its impairment calculations in accordance with IAS 36. The company confirmed that the cash flow projections used to measure value-in-use did not include any cash inflows or outflows expected from any future restructurings or from other asset enhancements.

Litigation

We asked for further information about the legal proceedings against the company, referred to in the Audit Committee Report, and the basis on which the disclosures required by IAS 37 ‘Provisions, Contingent Liabilities and Contingent Assets’ were not made. The company provided more information and explained that these disclosures were not made as the outflows, excluding amounts for which the likelihood is remote, were not considered to be material.
 
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InterContinental Hotels Group PLC
31 December 2020
No
Full
N/A
J Smart & Co. (Contractors) PLC
31 July 2020
No
Full
N/A
Johnson Matthey Plc
31 March 2020
Yes
Full
Yes
Revenue recognition – refining business

The company’s revenue recognition policy stated that refining revenue is recognised over time because it is earned from enhancing an asset controlled by the customer. We asked the company to explain the basis on which it concluded that metal within its refinery is controlled by customers. The company provided a satisfactory explanation and agreed to enhance its disclosures in future accounts to enable readers to better understand the nature of the metal refining arrangements and the related performance obligations.

The accounting policy also indicated that the revenue is recognised based on costs incurred as a proportion of estimated total contract costs. We asked for a description of how the methodology was applied in practice, including a description of the relevant performance obligations and transaction prices. The company acknowledged that the input method described in the accounting policy was general in nature and did not apply to refining revenue. It explained the specific method applied in the context of refining revenue and gave an undertaking to update its accounting policy in its future accounts.
 
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Marshalls plc
31 December 2020
No
Full
N/A
Mothercare plc (3)
28 March 2020
Yes
Full
Yes
Revenue recognition

We asked the company to provide further information about the basis for recognising revenue from sales of goods to franchise partners on dispatch of those goods. The company’s response satisfactorily addressed our concern. The company will enhance the wording of its accounting policy in future accounts to explain its rationale.

Earnings per share

The loss from continuing operations did not appear to have been used as the control number when determining whether the potential ordinary shares were dilutive for the purposes of diluted earnings per share from continuing and discontinued operations and from discontinued operations.

The company confirmed that it did not use the loss from continuing operations as the control number and that it would restate the 2020 amounts presented for EPS from continuing and discontinued operations and from discontinued operations. The company agreed to include an FRC reference in its 2021 accounts explaining that the enquiry from the Financial Reporting Council led to the correction. The diluted loss per share from continuing operations was determined in accordance with IAS 33 ‘Earnings per Share’.

We also asked for further information about the determination of the weighted average number of shares used in the diluted EPS amounts. The company explained that the number had been calculated incorrectly and that it would present restated amounts for 2020 in its 2021 accounts.

Related parties

We queried whether the directors considered a certain shareholder to be a related party. This shareholder had an interest in excess of 20% of the company’s ordinary share capital on 28 March 2020 and had provided a loan to the company in 2019. The company confirmed that the shareholder was a related party and that it would give the disclosures required by IAS 24 ‘Related Party Disclosures’ in future accounts.
 
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Orient Telecoms Plc
31 March 2020
Yes
Full
No
Oxford Instruments plc (3)
31 March 2020
Yes
Full
Yes
Revenue recognition accounting policy

We asked the company to clarify certain aspects of its revenue recognition policy, including the method used to allocate transaction prices to performance obligations, and how it had concluded that contracts for the sale and installation of complex systems contained a single performance obligation. The company satisfactorily addressed our questions and agreed to enhance the accounting policy in its next accounts.

Customer deposits and deferred income

We requested additional information to assist us in understanding the nature of customer deposits of £45.3m included in trade and other payables. In particular, we wanted to understand whether the amounts represent obligations to transfer goods and services under IFRS 15, ‘Revenue from Contracts with Customers’, and if so, how the company met the relevant disclosure requirements. We also asked whether there was a distinction between the customer deposits and deferred income.

The company satisfactorily explained that the customer deposits and deferred income are contract liabilities under IFRS 15, as they represent obligations to transfer goods and services. It also committed to enhance the disclosures included in its next accounts to clarify the matter and to disclose the information required by IFRS 15.

Bank loans and overdrafts

We questioned why bankloans and overdrafts in the parent company accounts were higher than those in the consolidated accounts.

The company acknowledged that, in its consolidated accounts, it had inappropriately offset positive bank balances and overdrafts that did not meet the offsetting criteria in paragraph 42 of IAS 32, ‘Financial Instruments: Presentation’. The company agreed to restate the comparative balance sheet in its next accounts by presenting the positive bank balances and overdrafts separately, and committed to provide the disclosures required by IFRS 7, ‘Financial Instruments: Disclosures’, where relevant.

Cash flow statement - classification of disposal-related expenses

We asked for the company’s rationale for classifying disposal-related expenses as investing activities in its cash flow statement. The company provided a satisfactory explanation and we closed the matter.

Alternative performance measures (APMs)

We identified a number of areas where improvements could be made to the presentation of the company’s APMs. The company accepted our observations and committed to provide reconciliations for all its APMs in future annual reports, and to ensure that APMs are not given more prominence than IFRS measures.
 
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Petropavlovsk PLC
31 December 2019
Yes
Full
Yes
Advances received from gold sales customers

We asked for information to assist us in understanding the nature of advances received from gold sales customers of £189m. The company satisfactorily explained that the amounts are contract liabilities and committed to provide relevant disclosures in its next accounts, as required by IFRS 15, ‘Revenue from Contracts with Customers’.

Impairment testing

We asked the company to explain its approach to determining the long-term real gold price and the Rouble-US Dollar exchange rate used for impairment testing. We were satisfied with the company’s explanation and its undertaking to provide this information in its next annual report and accounts.

We also asked the company to explain the discount rate applied. The company clarified that it applied a post-tax discount rate to post-tax forecast cash flows and separately derived the pre-tax discount rate. It also explained why this approach gave the same outcome as the methodology described in IAS 36, ‘Impairment of Assets’, which explains that an entity calculates value in use by applying a pre-tax discount rate to pre-tax cash flows.

Investment agreement with the Russian Ministry of Far East Development

The company’s annual reports and accounts disclosed an arrangement between the Russian Ministry of Far East Development, the Far East Grid Distribution Company and the company for the construction of a power line in the Amur region of Russia. In 2019, the company’s net cash from financing activities included gross cash inflows and outflows of $8.8m in relation to this agreement.

We asked the company to provide further details of the arrangement, and to explain the basis for classifying the cash flows as financing activities under IAS 7, ‘Statement of Cash Flows’. The company provided the requested information, and explained that the investment agreement ended in November 2019. It agreed to classify the cash flows as operating cash flows and to provide enhanced disclosures if it enters into similar agreements in the future.
 
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Quixant plc
31 December 2020
No
Limited
N/A
Softcat plc
31 July 2020
No
Full
N/A
Stock Spirits Group PLC
30 September 2020
Yes
Full
Yes
Brands

We asked the company to confirm whether there were any individual brand assets that were material to the financial statements. The company provided details of such brands for 2020 and agreed to disclose the carrying amount of any individually material brands in its 2021 annual report and accounts.

We also queried whether the factors supporting the assessment of an indefinite useful life for brands applied to all individually material indefinite life brands. The company confirmed that this was the case. We recommended that this was clarified in future annual reports and accounts.

Impairment testing of goodwill and indefinite life intangible assets

We asked the company to explain how it was satisfied that using post-tax cash flows and a post-tax discount rate, did not give rise to material differences from the requirements of IAS 36 ‘Impairment of Assets’. The company provided a satisfactory response and agreed to disclose the pre-tax discount rate in future annual reports and accounts.

Accounting policy for cash and cash equivalents

We asked the company to clarify the maturity threshold used for determining which short-term investments qualify as cash equivalents, for the purposes of IAS 7 ‘Statement of Cash Flows’. The company confirmed that it made this assessment by reference to their maturity from acquisition and agreed to clarify the accounting policy in future annual reports and accounts.
 
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Superdry Plc
25 April 2020
Yes
Full
Yes
Deferred tax

We asked the company for details of the evidence supporting the recognition of a material deferred tax asset balance relating to jurisdictions that had suffered a loss in either the current or preceding period and to explain why its recognition was not disclosed as a significant estimate under paragraph 125 of IAS 1 ‘Presentation of Financial Statements’. The company provided the information requested and undertook to include more specific disclosures to explain the evidence supporting such deferred tax assets in its 2021 annual accounts.

We also requested further details about the recognised and unrecognised deferred tax assets that the company had attributed to IFRS 16 ‘Leases’. The company provided satisfactory explanations and undertook to enhance its disclosure of such deferred tax amounts in future.

We requested a breakdown of material deferred tax balances described as relating to ‘temporary differences’. The company provided a satisfactory analysis and undertook to provide disclosures about individually large temporary differences in future.

Onerous property-related contracts provision

We asked the company for additional information to explain the circumstances that led to a release from its onerous property-related contracts provision in the year. The company provided a satisfactory explanation of the contributing factors.

Deferred income

We queried the presentation of balances reported as deferred income and the completeness of the disclosure of contract liabilities. The company confirmed the completeness of contract liabilities and explained that the gross amount of the contract liabilities balance was included in deferred income but an amount netted against it had been included in another line item. The company undertook to enhance its disclosure of contract liabilities in future and to present the net amount in the same line.

Alternative performance measures (APMs)

We queried the company’s use of the term ‘underlying’ in its APMs and how the measures were described, noting some apparent inconsistencies in terminology. We also asked how the label used for the APM met the requirement of the ESMA Guidelines on APMs to allow users to understand the relevance and reliability of the measure. The company gave a satisfactory explanation of its use of APMs. It undertook to change the terminology used to describe its APMs from ‘underlying’ results to ‘adjusted’ results and the description of ‘exceptional and other items’ to 'adjusting items'.

Banking covenants

We asked for clarification of an apparent inconsistency in commentary about the company’s expected compliance with its banking covenants under a ‘reverse stress test’ between the Chief Financial Officer’s Review and the Independent Auditor’s report. The company explained that there was no intended inconsistency, and that the reverse stress test, by definition, resulted in a covenant breach. The company undertook to ensure that in future the wording used in management’s statements on going concern would be more aligned to that used in the auditor’s report. It will also explain more explicitly the meaning of a reverse stress test.
 
Impairment of receivables

We asked the company to explain an apparent inconsistency between the amount presented on the face of the group statement of comprehensive income for ‘impairment losses on trade receivables’ and equivalent amounts presented in the notes to the accounts. The company provided a satisfactory explanation and undertook to present these amounts consistently in future.

Goodwill

We noted that the company’s conclusion that the cash flows used in the goodwill impairment test for the Retail and Wholesale CGUs were insensitive to any reasonably possible changes to key assumptions appeared to be inconsistent with the downturn in performance experienced by both CGUs. We asked for details of the headroom recorded against each CGU following management’s impairment calculations and the impact on that headroom of the reverse stress test scenarios to demonstrate how the company came to this conclusion. The company provided these details which showed significant headroom remaining in all cases. The company also set out the factors that explained the apparent inconsistency between significant store asset impairments and no goodwill impairment being recognised.
 
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Telecom Plus plc (3)
31 March 2020
Yes
Full
Yes
Significant estimate: revenue recognition

We asked the company to provide further information about the estimation uncertainty relating to revenue from non-smart meter customers, including the carrying amounts of associated balances and sensitivities or ranges of reasonably possible outcomes.

The company agreed to enhance its disclosure about this significant estimate in future annual reports and accounts.

Expected credit losses

We asked for an explanation of the basis on which the allowance for credit losses had been calculated and for clarification as to whether the non-current financial assets had been assessed for impairment. Additionally, we asked for further information about the requirement of paragraph 35M of IFRS 7, ‘Financial Instruments; Disclosures’, to disclose, by credit risk rating grades, the gross carrying amount of financial assets.

The company confirmed that non-current financial assets are assessed for impairment and agreed to augment its disclosures to include details of the inputs, assumptions and estimation techniques used to calculate expected credit losses in future annual reports and accounts.

The company explained that the key determinants in calculating expected credit losses for trade receivables are ageing and whether an indebted customer remains with the Group. Disaggregated gross trade receivables and the corresponding expected credit losses will be presented on this basis in future annual reports and accounts.

Impairment charge in the year

Given the materiality of the credit loss impairment charge in the year, we questioned why this had not been disclosed separately on the face of the statement of comprehensive income as required by paragraph 82(ba) of IAS 1.

The company agreed to separately show the credit loss impairment charge on the face of the statement of comprehensive income in future annual reports 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.
 
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The Berkeley Group Holdings plc
30 April 2020
Yes
Full
Yes
Revenue recognition

We asked the company to provide further details of the revenue recognition policy applied to commercial sales and affordable housing sales.

The company explained how revenue from commercial sales and affordable housing sales was recognised. The company also agreed to enhance its revenue recognition accounting policy in future reports and accounts if sales in respect of freehold affordable housing contracts were to become material.

We requested further information on the way in which new property deposits, on-account contract receipts and reservation fees are measured. The company explained satisfactorily how these balances arose and the way in which they were accounted for with reference to IFRS 9, ‘Financial Instruments’ and IFRS 15, ‘Revenue from Contracts with Customers’.

Significant estimates

We queried whether the carrying value of inventory and profit recognition had been identified as a significant area of estimation uncertainty. We also asked the company to explain how they considered the accounts met IAS 1 ‘Presentation of Financial Statements’ disclosure requirements in respect of certain areas of significant estimation uncertainty.

The company confirmed that the carrying value of inventory and profit recognition had been identified as an area of significant estimation uncertainty. The company also agreed to enhance the estimation uncertainty disclosures in respect of inventory and profit recognition, and provisions for liabilities and charges by providing sensitivity information in its future report and accounts.

Alternative performance measures

We asked the company to provide reconciliations for net asset value per share and pre-tax return on equity alternative performance measures (APMs) to the relevant IFRS component. We also asked the company to provide the definition for net asset value per share. The company provided the reconcilations and definitions requested and agreed to include a specific note reconciling these APMs in future reports and accounts.
 
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Vodafone Group Plc
31 March 2020
Yes
Full
Yes
Parent company’s investments in subsidiaries

We asked how the impairment assessments performed at a group level were adapted for the purposes of the impairment review of the parent company’s investments in subsidiaries and the extent to which separate sensitivity disclosures should be provided for the parent company.

The company provided a satisfactory explanation and confirmed that there was no significant risk of material adjustment to the carrying values of the investments in the next financial year. The company agreed to amend the disclosure to clarify this and to provide additional disclosure in respect of the impairment review of the investments in subsidiaries.

Review of goodwill for impairment

We questioned the company about the capital expenditure assumptions made in its value in use (‘VIU’) calculations. The company provided a satisfactory analysis and confirmed that all material capital expenditure included in its VIU calculations is incurred to maintain, rather than improve, the level of economic benefits obtained from its network and infrastructure. The company agreed to amend its disclosure to clarify this judgement.

Deferred tax assets

We asked for further information about the nature of evidence supporting the recoverability of the deferred tax assets for tax losses in Luxembourg and Germany. We also requested the company explain how the change in tax legislation in Luxembourg in 2017 affected the assessment of recoverability of the deferred tax asset.

The company provided a satisfactory analysis, which included confirmation that the change in the tax regime in Luxembourg in 2017 does not impact the recoverability of the pre tax reform tax losses for which the deferred tax asset has been recognised.
 
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Watkin Jones plc
30 September 2020
Yes
Limited
Yes
This company was selected as part of our thematic review of streamlined energy and carbon reporting (‘SECR’) disclosures and, as such, only these disclosures were reviewed.

Streamlined energy and carbon reporting

We asked the company to explain why it had not satisfied the SECR disclosure requirements relating to emissions, energy use and energy efficiency measures, which applied for the first time to the company’s 2020 annual report and accounts. The company explained why it did not include this information in the 2020 accounts and agreed to make the required disclosures in the 2021 and future annual reports and accounts.
 
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Wizz Air Holding Plc(3)
31 March 2020
Yes
Full
Yes
Sale and lease-back transactions

We asked the company for further information on gains and losses on sale and leaseback transactions. The company provided this information noting that, in the year under review, total gross gains were immaterial and that no losses had been incurred. We encouraged the company to clarify its future disclosures in light of our enquiries in this area.

On-board catering revenues

We sought an explanation of how the company had concluded that it acts as agent, rather than principal, in respect of on-board catering services. We were satisfied with the explanation provided.

Cash and cash equivalents

We asked the company to explain the basis on which financial assets with an original maturity of between three and 12 months had been classified as ‘cash equivalents’. Following correspondence and discussions with the company, it agreed to separate from cash and cash equivalents deposits with an original maturity of greater than three months, even if they were accessible within three months at insignificant cost, where those deposits were being held for purposes other than meeting short-term cash commitments.

In accordance with IAS 8 ‘Accounting Policies, Changes in Accounting Estimates and Errors’, the company accounted for this change as a prior period adjustment in its annual report and accounts for the year ended 31 March 2021. 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.

Other enquiries

In view of the proximity of our enquiries to the company’s 2021 reporting date, we asked the company to consider some observations in respect of disclosures included in its 2020 annual report and accounts and to provide, after publication of its 2021 annual report and accounts, explanations of how those matters had been addressed. The observations covered:
  • The extent to which the sources of estimation uncertainty identified had a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year and, for those that did, the disclosure of related quantitative information.
  • The clarity of the disclosure of judgements made in the application of hedge accounting and the disclosure of the effects of hedge accounting on the financial position and performance of the company.
The company made satisfactory improvements to disclosures in its 2021 annual report and accounts.
 
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