CRR Case Summaries and Entity-specific Press Notices
The FRC publishes, on a quarterly basis, summaries of its findings from recently closed reviews that resulted in a substantive question to a company (‘Case Summaries’). In addition, it publishes the names of companies whose reviews were closed in the previous quarter without the need for a substantive question. No Case Summary is prepared for such reviews.
Case Summaries, which are available for cases closed in the quarter ending March 2021 onwards, are included in the table below. As, currently, the FRC is subject to existing legal restrictions on disclosing confidential information received from a company, the Case Summaries can only be disclosed with the company's consent. Where consent has been withheld by the company, that fact is disclosed in the table.
From March 2018 until March 2021, the FRC published the names of companies whose reviews were closed in the previous quarter but did not prepare Case Summaries. However, on an exceptional basis, specific cases may be publicised through entity-specific Press Notices, which can also be found in the table below.
The FRC’s reviews are based solely on the company’s annual report and accounts (or interim reports) and do not benefit from detailed knowledge of the company’s business or an understanding of the underlying transactions entered into. They are, however, conducted by staff of the FRC who have an understanding of the relevant legal and accounting framework. The FRC’s correspondence with the company provides no assurance that the annual report and accounts (or interim reports) are correct in all material respects; the FRC’s role is not to verify the information provided but to consider compliance with reporting requirements. The FRC’s correspondence is written on the basis that the FRC (which includes the FRC’s officers, employees and agents) accepts no liability for reliance on its letters or Case Summaries by the company or any third party, including but not limited to investors and shareholders.
Key
- Only a certain number of CRR’s reviews result in substantive questioning of the Board. Matters raised may cover questions of recognition, measurement and/or disclosure.
- CRR’s routine reviews of companies’ annual reports and accounts generally cover all parts over which the FRC has statutory powers (that is, strategic reports, directors’ reports and financial statements). Similarly, CRR’s routine reviews of companies’ interim reports will generally cover all information in that document. Limited scope reviews arise for a number of reasons, including those conducted when a company’s annual report and accounts or interim report are selected for thematic review or reviews that have been prompted by a complaint. In accordance with the FRC's Operating Procedures, for Corporate Reporting Review, CRR does not identify those companies whose reviews were prompted by a complaint.
- The FRC may ask a company to refer to its exchanges with CRR when the company makes a change to a significant aspect of its annual report and accounts or interim report in response to a review.
- Case closed after 1 January 2021 but performed under operating procedures that did not allow for the publication of Case Summaries.
- From the quarter ended June 2023, the FRC started identifying the auditor of the annual report and accounts, or the audit firm that issued a review report on the interim report, that was the subject of the CRR review. This information was also back-dated for closed cases publicised from the quarter ended September 2022. Cases marked N/A relate to those published prior to September 2022 or interim reviews that did not have a review opinion.’
Case Summaries
CRR Case Summaries and Entity-specific Press Notices (Excel version)
| Entity | FRP Advisory Group plc (3) |
|---|---|
| Balance Sheet Date | 30 April 2021 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | September 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Deemed remuneration In relation to acquisitions, we requested further information about the company’s accounting for deemed remuneration. The company satisfactorily explained the basis for concluding that equity consideration represented post combination remuneration (deemed remuneration) and provided its rationale for recording the deemed remuneration debit to the share-based payment reserve on initial recognition. Spectrum acquisition We observed that the description of the acquisition of Spectrum Corporate Finance Limited (‘Spectrum’) in the accounts and an announcement of the transaction did not appear consistent. Accordingly, we requested further information to enable us to better understand the accounting for the transaction. The company provided the information requested which included details of the terms and structure of the deal. In closing the matter, we encouraged the company to ensure that, in future, information provided in the accounts and other public sources of information can be easily reconciled. Revenue from non-refundable retainer fees We asked the company to explain its rationale for recognising non-refundable retainer fees up-front. The company clarified that these fees were recognised ‘over time’ rather than upfront at a ‘point in time’ and undertook to amend its policy wording going forward. Unbilled revenue We requested further information about the credit risk associated with unbilled revenue which the company provided together with a commitment to expand its unbilled revenue credit risk disclosures, in view of the significance of this balance. Trade and other payables Within current and non-current liabilities, the company disclosed balances described as “liabilities to partners go forward”. We asked the company how these arose and were accounted for as this was not clear from the accounts. The company provided the information requested and undertook to include an accounting policy for partner liabilities in its next accounts. We also requested an explanation for the movement in current other payables and accruals which the company provided. Provisions We sought further information about the company’s provisions and the accounting for claims covered by insurance. The company confirmed that there were no claims which required provisioning or disclosure and also committed to review its policy for provisions in its next accounts. Dividend liability We asked the company to explain the basis for recognising a liability for interim dividends declared but not paid. The company acknowledged that no legal or constructive obligation existed at year end to support recognition of the liability. The company undertook to change its policy for interim dividends, so that they are recognised when paid rather than declared, and to derecognise retrospectively the interim dividend accrued in 2021 of £1.8m, in its2022 consolidated and parent company 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 a result of our enquiry. |
| Entity | Mode Global Holdings Plc (3) |
| Balance Sheet Date | 31 December 2020 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | September 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Convertible loan notes We asked the company for further information about why the initial $USD consideration for the convertible loan notes had been allocated to both liability and equity components, as we would not expect a convertible bond denominated in a foreign currency to have an equity component. We also questioned why a gain was recognised on the settlement of the convertible loan notes. The company provided an explanation of the terms of the convertible loan notes and stated that following further review of the matter the company had determined that the convertible loan notes should have been recognised as a liability in full, with no gain recognised on settlement. The company agreed to restate the comparative period in its 2021 Annual Report and Accounts for this error. 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. |
| Entity | On the Beach Group plc (3) |
| Balance Sheet Date | 30 September 2021 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | September 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Disclosure of engagement with regulators We questioned the disclosure in the Audit Committee Report that referred to an FRC Corporate Reporting Review (CRR) team review of the 2020 Annual Report. The company confirmed that its correspondence with the FRC in the year ended 30 September 2021 in fact related to a review of the company’s 2020 audit by the FRC’s Audit Quality Review (AQR) team. We also drew the company’s attention to the FRC Guidance on Audit Committees, which states that when disclosing the fact that a company’s audit has been reviewed by the AQR team, companies should not disclose the audit quality category. The company undertook to publish a correction its 2022 Annual Report to clarify the nature of its correspondence with the FRC in the year ended 30 September 2021 and to confirm that the CRR team did not make any assessment as to the quality of the disclosures given in the 2020 Annual Report and Accounts. Deferred tax asset classification and disclosure We challenged the classification of a material net deferred tax asset as a current asset in the balance sheet. The company undertook to restate the comparative balance sheet in its 2022 Annual Report and Accounts, to present deferred tax as non-current, as required by paragraph 56 of IAS 1, ‘Presentation of Financial Statements’. The company agreed to disclose the fact that the matter had come to its attention as a result of our enquiry. We asked the company to provide more information on the nature of the evidence supporting the recognition of a net deferred tax asset, given that the company suffered a loss in both the current and preceding financial years. The company satisfactorily responded to our enquiries and, should the balance remain material, we encouraged the inclusion of more company-specific disclosure in future reporting, in accordance with the 2019 ESMA public statement ‘Considerations on recognition of deferred tax assets arising from the carry-forward of unused tax losses’. We also enquired whether the company considered the measurement of the deferred tax asset to be a major source of estimation uncertainty that has a significant risk of resulting in a material adjustment within the next financial year, as set out in paragraph 125 of IAS 1. The company clarified that it did not consider there to be a significant risk of a material adjustment within the next financial year, and undertook to enhance its future disclosures under paragraph 122 of IAS 1 in relation to the critical judgements made in relation to the expected timing of recovery of the deferred tax asset. |
| Entity | Energean plc (3) |
| Balance Sheet Date | 31 December 2020 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | June 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Income taxes We requested further information about deferred tax assets arising from losses. The company satisfactorily explained the evidence supporting the recognition of these deferred tax assets, and other factors associated with the losses, including the locations in which these losses arose and, where relevant, their expiry date. The company agreed to provide additional disclosures associated with these deferred tax assets in the future. Leases We asked the company to explain their accounting policy for certain leases referred to in the annual report. The company explained their accounting policy for these leases, which related to oil and gas concessions, and agreed to include disclosure of the accounting policy for leases outside the scope of IFRS 16 in its next annual reports and accounts. Trade and other payables We requested an explanation for certain balances presented within trade and other payables. We questioned the nature of a liability described as a long term prepayment. The company explained this arose from amounts paid by Israel Natural Gas Lines for the transfer of the near shore and onshore segment of the Karish and Tanin infrastructure, which was expected to complete in Q4 2021/Q1 2022. We asked the company further questions about the classification of the associated asset as property, plant, and equipment, the timing of the expected derecognition, and the classification of cash flows in the cash flow statement. As a result of our enquiries, the company reconsidered the classification of the cash flows, and agreed that they should be classified as investing activities, rather than financing activities. The company agreed to reclassify the comparative amounts to reflect this change in its 2021 annual report and accounts. As the reclassification affects a primary statement, the company also agreed to disclose in its 2021 report and accounts that the matter came to its attention as a result of the Financial Reporting Council’s enquiry. Borrowing facilities We asked the company for an explanation of the difference between the carrying value of its borrowings, and the disclosures of the amounts drawn down under those facilities. The company explained these differences to our satisfaction. |
| Entity | Epwin Group Plc (3) |
| Balance Sheet Date | 31 December 2020 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | June 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Offset of bank overdrafts and cash and cash equivalents We questioned why the parent company accounts included an overdraft balance which was not included within the consolidated accounts. The company acknowledged that, in its consolidated accounts, it had offset positive cash 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 annual report and accounts by presenting the positive cash balances and overdrafts separately. 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. Share options We asked the company for more information about the terms of the share options exercised during the year and to explain the consequential reduction in equity. The company provided a satisfactory explanation of the terms of the options including a net settlement feature which supported the reduction. The company undertook to disclose details of the terms and conditions of the options, including the net settlement feature, in its next annual report and accounts. Movement in lease assets We asked for clarification of the reasons for the reduction in lease assets, held by the company as a lessor, and where this was disclosed in the annual report and accounts. The company explained that the asset had been reclassified to right-of-use assets as it is no longer sublet and is instead now expected to be used by the group. The company agreed to expand the disclosure in its next annual report and accounts to explain the recognition of the right-of-use asset. Gain on sale and leaseback We asked the company to explain where the gain on sale and leaseback of a property was presented in the income statement. The company provided this information noting that it was not separately presented in the income statement as, in the year under review, total gross gains were considered immaterial. |
| Entity | Helical plc (3) |
| Balance Sheet Date | 31 March 2021 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | June 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Amounts owed by subsidiary undertakings We asked the company to explain the rationale for classifying amounts due from subsidiary undertakings as current assets in the parent company balance sheet. The company acknowledged that it did not expect the amounts to be settled within 12 months and that the amounts should be classified as non-current assets. The company agreed to restate the comparatives in its next annual 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 a result of our enquiry. |
| Entity | HSS Hire Group plc (3) |
| Balance Sheet Date | 26 December 2020 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | June 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Identification of cash-generating units We requested more information on the identification of cash-generating units for the purpose of assessing impairment of property, plant and equipment and right of use assets. The company provided satisfactory responses to our enquiries. Onerous property cost and dilapidations provisions We asked the company to explain the reasons for a material change in the level of property-related provisions between the 2020 year-end and the 2021 interim reporting date, and hence the basis on which it was satisfied that the provisions were measured at the best estimate of the expenditure required to settle the present obligation under paragraph 36 of IAS 37, ‘Provisions, Contingent Liabilities and Contingent Assets’. The company explained that this was due to the successful negotiation of the early surrender of property leases in the first half of 2021 that had not been anticipated at the time the 2020 year-end accounts were prepared. We questioned the extent of the sensitivity disclosures provided under paragraph 129 of IAS 1 ‘Presentation of Financial Statements’, in relation to property-related provisions, and the company undertook to include additional disclosure to the extent it is relevant and material in the future. We also encouraged the company to improve the clarity of the disclosure of material components of exceptional onerous property costs and credits in future financial statements. Impairment of financial assets We asked the company to explain its rationale for not presenting material impairment losses in relation to financial assets on the face of the consolidated income statement as required by paragraph 82(ba) of IAS 1. The company agreed to disclose this information in future financial statements to the extent material, and agreed to restate the 2020 comparatives to the 2021 income statement accordingly. As the restatement 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. |
| Entity | Murray Income Trust PLC (3) |
| Balance Sheet Date | 30 June 2021 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | June 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Classification of cash inflow in relation to asset purchase We questioned the company’s classification of a cash inflow of £40,248,000 associated with the acquisition of a pool of investment assets, satisfied by the issue of shares and assumption of debt, as an investing cash flow in the Statement of Cash Flows. As the transaction was not accounted for as a business combination, this cash inflow did not meet the definition of investing activities set out in paragraph 7.5(c) of FRS 102, ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’. The company undertook to restate the comparatives to the Statement of Cash Flows for the period ending 30 June 2022 to reclassify the cash inflow associated with the transaction as a financing inflow, in accordance with paragraph 7.6 of FRS 102. As the restatement 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. |
| Entity | NEXT plc (3) |
| Balance Sheet Date | 30 January 2021 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | June 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Cash flow statement The Chief Executive’s review disclosed that, during the year, a gain was recognised on sale and leaseback transactions in relation to the ‘portion’ of the assets that were not leased back and which were, in effect, disposed of. In view of this, we questioned why all the proceeds from sale and leaseback transactions were classified as financing activities in the cash flow statement. The company acknowledged that the proceeds from the sale of the portion of assets that were not leased back should have been classified as investing activities in the cash flow statement included in its 2021 accounts. While the company did not consider this to be material to its 2021 report and accounts, it considered it appropriate to restate the comparatives in its next report and accounts to reflect the requirements of IAS 7, ‘Statement of Cash Flows’, and to be consistent with the presentation of any subsequent sale and leaseback transactions. The company agreed to provide an explanation of the change in accordance with the requirements of IAS 8, ‘Accounting Policies, Changes in Accounting Estimates and Errors’. As the restatement 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. |
| Entity | Oxford Biomedica plc (3) |
| Balance Sheet Date | 31 December 2020 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | June 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Revenue recognition We asked the company to describe its accounting policy for the capacity reservation fee referred to in its strategic report. The company provided this information and undertook to disclose the policy in its future accounts. We noted an inconsistency in amounts disclosed for contract assets between the disclosures about critical judgements and estimates, and the trade and other receivables note to the accounts. The company explained the inconsistency and undertook to improve the clarity of its disclosures in this area in future accounts. Operating EBITDA We requested further information about certain items in the reconciliation of operating EBITDA to operating loss as we were unable to trace these items to figures disclosed elsewhere in the accounts. The company provided the information requested and undertook to ensure, in future annual reports, that figures reported in the finance review could be agreed to amounts in the notes to the accounts. The company also undertook to amend its definition of operating EBITDA to make clear that this measure excluded share-based payment charges, except those charges deemed to be “cash related”. In closing this matter, we observed that we expected the disclosures to make clear the basis on which the company considered certain share-based payment charges to be cash-related items, and thus included in operating EBITDA. Taxation We sought an explanation for the movement in current tax assets as this was not clear from the accounts. The company provided the explanation requested, which prompted a follow-up question on the composition of the other tax receivable balance included within trade and other receivables. The company acknowledged that it had offset VAT payable against the other tax receivable balance and undertook to ensure such balances were appropriately classified as liabilities within trade and other payables in future accounts. As the company did not consider the misclassification of VAT payable to be material we did not consider it proportionate to pursue the matter further. Company cash flow statement We questioned why cash flows from a loan to subsidiary were classified as arising from financing, rather than investing, activities in the parent company’s cash flow statement. The company acknowledged that the amount should have been classified as an investing cash flow and undertook to correct this in its 2021 report and accounts, and to restate the comparatives. 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. |
| Entity | R.E.A. Holdings plc (3) |
| Balance Sheet Date | 31 December 2020 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | June 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Inconsistencies in reported amounts in total comprehensive income We asked the company to explain several inconsistencies between certain amounts recognised in total comprehensive income and those disclosed elsewhere in the primary statements or in the notes. The company acknowledged that there were errors in the amounts presented for: the tax credit in the income statement; deferred tax, actuarial gains/losses and foreign exchange in the statement of other comprehensive income; and equity attributable to non-controlling interests. The company agreed to restate the comparatives in its next annual report and accounts. As the restatements affected primary statements, we asked the company to disclose the fact that the matter had come to its attention as a result of our enquiry. Disclosure of covenants Although the company had disclosed the breach, and subsequent waiver of the breach, of certain loan covenants, it had not provided any explanation of the covenant terms or quantification of the headroom thresholds that were breached. The company agreed to our request that it should disclose more information about its loan covenant arrangements in future if there are instances of breaches or potential breaches of covenant terms. Obligations from tax disputes We asked the company to clarify the potential obligations to which it was exposed as a result of its ongoing tax disputes and how the obligations were reflected in the annual accounts. The company provided further explanation of the obligations and their accounting treatment, and agreed to provide clearer disclosures and quantification of the amounts in its 2021 annual report and accounts. Advance payment of taxation We requested further information about the balance reported as ‘Advance payment of taxation’ within trade and other receivables. The company provided further analysis of the balance and agreed to present the amount of the balance that related to corporate income tax as a separate line item in the balance sheet in the 2021 annual report, as required by IAS 1, ‘Presentation of Financial Statements’. It will also provide a clearer description of the amount remaining within trade and other receivables. Capitalisation of administrative expenses We asked for information about the type of costs that were included in the amounts described as capitalised from administrative expenses and how they met the criteria for capitalisation in accordance with IAS 16, ‘Property, plant and equipment’. The company satisfactorily explained that the costs involved were directly related to the supervision of its plantations and that the amount capitalised represented the proportion of those costs relating to its immature palm oil plantings. |
| Entity | 4imprint Group plc (3) |
| Balance Sheet Date | 2 January 2021 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | March 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Parent company cash flow statement We asked the company to explain the extent of the cash and non-cash movements in the amounts due to and from subsidiaries in the parent company’s balance sheet. The company provided a satisfactory explanation of these movements in the year. We also questioned the classification of dividends received as financing cash inflows in the parent company cash flow statement. The company agreed to classify these amounts as investing cash inflows in accordance with paragraph 33 of IAS 7, ‘Statement of Cash Flows’, in its 2021 financial statements and to restate the comparative amounts accordingly. As the restatement 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. Tax on defined benefit pension contributions We asked the company to clarify the basis of its allocation of tax on defined benefit pension contributions between the income statement and other comprehensive income. While we were not persuaded that the basis of allocation used best reflects the requirements of paragraph 63 of IAS 12, ‘Income Taxes’, the company clarified that the net effect on the income statement and other comprehensive income would not have been materially different had an alternative allocation policy been applied. The company undertook to reconsider certain aspects of the allocation and the related accounting policy note in future periods. We also asked the company for more information on the composition of deferred tax balances related to the pension scheme. The company satisfactorily responded to this enquiry. |
| Entity | 888 Holdings plc (3) |
| Balance Sheet Date | 31 December 2020 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | March 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Impairment of goodwill We requested information about the basis on which the company had allocated assets to the bingo cash generating units for the purpose of impairment testing. The company responded satisfactorily and explained the judgements it had made. Amounts due to and from subsidiaries We asked for clarification of the value of dividends received in cash during the year based on an inconsistency in the notes compared to the parent company cash flow statement. The company acknowledged that the parent company cash flow statement included an incorrect amount for the dividend cash inflow and agreed to restate the comparatives in its next annual 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 a result of our enquiry. We asked the company to explain the rationale for classifying amounts due from subsidiaries as current assets and the loan payable to subsidiaries as a non-current liability. The company explained the judgements it had made and undertook to disclose details of the terms and conditions of the loan in future annual reports and accounts. The company classified cashflows with subsidiaries as operating activities and provided a net figure for the movement on amounts due to and from subsidiaries. We enquired about the nature of the underlying transactions and asked the company to explain the basis for showing a net movement on the balances with subsidiaries. The company provided a satisfactory explanation of the nature of the transactions to support the inclusion of the cashflows within operating activities. The company undertook to present separate line items for the movements in amounts due to and from subsidiaries in future annual reports and accounts. |
| Entity | Derwent London plc (3) |
| Balance Sheet Date | 31 December 2020 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | March 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Cash flow statement We asked the company to explain its rationale for classifying the cash flows arising from the disposal of trading properties in investing activities in the cash flow statement. The company acknowledged that the cash flows did not arise from investing activities as defined in paragraph 6 of IAS 7, ‘Statement of Cash Flows’, and that they should be classified as operating cash flows. The company agreed to re-present the comparative amounts in its 2021 annual report and accounts. As the re-presentation affects a primary statement, the company also agreed to disclose in its 2021 report and accounts that the matter came to its attention as a result of the Financial Reporting Council’s enquiry. |
| Entity | Hyve Group plc (3) |
| Balance Sheet Date | 30 September 2020 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | March 2022 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Assets and liabilities recognised in respect of acquisitions – leases We asked the company to explain why a right-of-use (‘ROU’) asset arising from a business combination in the period was significantly less than the related lease liability recognised. The company explained that the ROU asset had been reduced to reflect the fact that the company did not intend to use all the office space leased. The company acknowledged that the ROU asset had been adjusted to reflect company-specific circumstances rather than any differences between the lease terms and market terms, as required by paragraph 28B of IFRS 3 ‘Business Combinations’. It agreed that the ROU asset should instead have been measured at the same amount as the lease liability. The company agreed to restate the comparative amounts in the following year’s annual report and accounts, with consequential amendments to goodwill, deferred tax, impairment and depreciation. As the restatement affects the primary statements, 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. Assets and liabilities recognised in respect of acquisitions – deferred tax assets We sought clarification of how the deferred tax relating to the acquisitions was calculated. The company provided this information, noting that a deferred tax asset relating to deferred income and lease balances had been incorrectly described as relating to provisions and accruals. The company undertook to ensure that movements in deferred tax are more appropriately described in future annual reports and accounts. The company agreed to disclose the tax effects of future acquisitions, should this be relevant and material. We suggested considering whether the tax effect of acquisitions also needs to be discussed in future strategic reports in order to satisfy the requirement of section 414C of the Companies Act 2006, to provide a balanced and comprehensive analysis of its position at the year end. Assets and liabilities recognised in respect of acquisitions – deferred income We asked the company for details of the nature of the obligation relating to the acquired deferred income and the basis for which the fair value was determined. We were satisfied with the explanation provided and encouraged the company to disclose details of how the fair value of acquired deferred income is determined, should this be material, in future annual reports and accounts. Recoverability of intercompany receivables and investment in subsidiaries We requested information about the basis on which the company had determined that the intercompany receivables and investment in subsidiaries included in the company statement of financial position were recoverable. The company provided a satisfactory response. We explained that more granular disclosure about the impairment methodology applied would have helped users to understand the basis for the impairment charge recognised. We also noted that we would generally expect ‘investment in subsidiary’ balances to be impaired before intercompany debtors, given that equity holders typically bear losses before creditors. |