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 | Persimmon Plc |
|---|---|
| Balance Sheet Date | 31 December 2019 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | March 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Revenue recognition The accounts disclosed that revenue is recognised from development agreements but no further information was provided. We enquired about the amount of revenue recognised from these agreements and the basis for recognition. The company explained that the amount of revenue related to these agreements is not material in the context of the overall revenue and the performance obligations are fulfilled over time but relatively quickly. Based on these explanations, we closed our enquiry. The company undertook to keep the disclosures relating to the revenue arising from development agreements under review. Sensitivity analysis We asked the company to provide further information about the sensitivity of the valuation of inventory to changes in assumptions, which was identified in the accounts as a source of estimation uncertainty in accordance with IAS 1 ‘Presentation of Financial Statements’. The company explained that the key estimates disclosed with respect to the valuation of inventory were not sources of estimation uncertainty, as defined by paragraph 125 of IAS 1, because no reasonably possible change in assumptions could result in a material impact on the carrying value of inventory within the next year. On the basis of that explanation, we closed our enquiry into the estimation uncertainty disclosures but encouraged the company to differentiate clearly any such additional disclosures from those required by IAS 1 and to explain their relevance. |
| Entity | Polypipe Group plc |
| Balance Sheet Date | 31 December 2019 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Limited |
| Quarter Published | March 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice | N/A |
| Entity | Premier Oil plc |
| Balance Sheet Date | 31 December 2019 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Limited |
| Quarter Published | March 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice | N/A |
| Entity | Primary Health Properties PLC |
| Balance Sheet Date | 31 December 2019 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | March 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Accounting for an asset purchase The company disclosed that, following early-adoption of an amendment to IFRS 3 ‘Business Combinations’ regarding the definition of a business, it had accounted for a major acquisition as an asset purchase rather than as a business combination. We asked why the directors considered it appropriate to early-adopt the amendment as it had not been endorsed by the European Union at the date on which the annual report and accounts were approved. The company acknowledged that the amendment was not available for use in the annual report and accounts under examination but provided an analysis to demonstrate that the transaction would have been accounted for as an asset purchase based on the IFRS 3 requirements that were effective when the accounts were approved. On the basis of this analysis, we closed our enquiry into the matter. Labelling of alternative performance measures We questioned whether descriptions given to certain alternative performance measures (APMs) were potentially misleading because they were similar to descriptions given to IFRS measures. The company accepted our observation and agreed to amend the descriptions in the next annual report and accounts. Disclosure of directors’ emoluments We enquired whether the disclosure of directors’ emoluments complied with UK company law and were satisfied by the company’s explanation. |
| Entity | Proteome Science plc |
| Balance Sheet Date | 31 December 2019 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Limited |
| Quarter Published | March 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice | N/A |
| Entity | Rentokil Initial plc |
| Balance Sheet Date | 31 December 2019 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Full |
| Quarter Published | March 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice | N/A |
| Entity | RIT Capital Partners plc |
| Balance Sheet Date | 31 December 2019 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Full |
| Quarter Published | March 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice | N/A |
| Entity | Rolls-Royce Holdings plc |
| Balance Sheet Date | 31 December 2019 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | March 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Distributable profits We questioned whether the dividend receivable from Rolls-Royce Group Limited met the criteria for qualifying consideration when determining the realised profits and distributable reserves of Rolls-Royce Holdings plc, in accordance with the provisions of the Companies Act 2006. The response from the company satisfactorily addressed our query. Provision for Trent 1000 costs We asked the company to provide further information to help us understand the basis for recognising the Trent 1000 exceptional costs provision and the nature of the costs provided for, including an explanation of how the requirements of IAS 37, ‘Provisions, Contingent Liabilities and Contingent Assets’ had been satisfied. The company’s response addressed the concerns that we had raised. The company committed to improve the disclosure in its future accounts by providing additional explanation of the basis for the recognition and measurement of the provision in accordance with IAS 37. Free cash flow and the summary funds flow statement It was unclear how the summary funds flow statement, which includes a key performance indicator, had been derived from the reported cash flow statement. We asked the company to supply us with a reconciliation along with an explanation of the purpose of the summary funds flow statement. We also queried whether the reconciliation was clear enough to render equal prominence of IFRS performance measures as compared to alternative measures (APMs) in the financial review. We held a discussion with the company to understand the group’s process for compiling the detailed reconciliation between the IFRS cash flow statement and the summary funds flow statement. On the basis of this discussion, the company agreed to provide the source of the numbers presented in future summary funds flow statements, along with additional explanations as necessary for users to understand the basis for any significant reconciling items. We were satisfied by the company’s explanation of the basis on which it had considered the requirement for equal prominence to have been achieved between APMs and IFRS measures. Nevertheless, the company agreed to deliver further improvements in the 2020 strategic report, including additional narrative about the statutory cash flow movements. |
| Entity | Rotork plc |
| Balance Sheet Date | 31 December 2019 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Limited |
| Quarter Published | March 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice | N/A |
| Entity | Senior plc |
| Balance Sheet Date | 31 December 2019 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | March 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Deferred tax assets We asked how the adoption of a new accounting policy for the recognition of deferred tax assets for interest carried forward met the requirements of IAS 8, ‘Accounting Policies, Changes in Accounting Estimates and Errors’ since there had been no change to the relevant guidance in IAS 12, ‘Income Taxes’. The company agreed that IAS 12 includes relevant guidance for the company’s accounting policy for the recognition of these deferred tax assets. However, it considered that the change in accounting policy reflected new emerging best practice specific to the company’s facts and circumstances, rather than the correction of an error. Given that these changes do not impact the company’s future reporting, and the amounts involved were not significant in relation to the company’s financial position, we did not consider it proportionate to pursue this further. Uncertainty over income tax treatments The accounts explained that the accounting policies had been changed to reflect the requirements of IFRIC 23, ‘Uncertainty over Income Tax Treatments’ resulting in an adjustment to opening retained earnings. We asked for details of the changes made as the new policy wording was similar to that disclosed in the company’s previous accounts. The company’s response addressed the concerns that we had raised. We recommended that in future it would be helpful if the company disclosed whether the most likely amount method or the expected value method is applied when providing for an uncertain tax position. Adjusted earnings The accounts disclose that items considered to be outside the earnings for the year are excluded from the Company’s measure of adjusted earnings per share. We questioned why a one-off benefit arising from the clarification of tax incentives available on historical profits was not excluded from adjusted earnings. The response from the company satisfactorily addressed our query. |
| Entity | Severn Trent Plc |
| Balance Sheet Date | 31 March 2020 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Limited |
| Quarter Published | March 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
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. Treatment of contract liabilities We requested additional information about deferred income balances disclosed within the accounts, and for clarification as to whether they were considered to be contract liabilities under IFRS 15. The company confirmed that these balances should be classified as contract liabilities under IFRS 15 as they represented consideration received in return for performance obligations that were yet to be satisfied. As they had not been accounted for as such, the company agreed to amend its accounting policy. It explained that the change in policy will result in the liabilities being released to revenue, rather than operating costs over the life of the associated assets. The change will be made prospectively given that, historically, the amounts involved had been immaterial. The company also agreed to provide additional disclosures about contract liabilities going forward, and to disclose the recognition of amounts received as deferred income rather than as in-period revenue as a significant judgement under IAS 1 ‘Presentation of Financial Statements’. |
| Entity | Sirius Real Estate Limited |
| Balance Sheet Date | 31 March 2020 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Limited |
| Quarter Published | March 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice | N/A |
| Entity | Smith & Nephew plc |
| Balance Sheet Date | 31 December 2019 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Full |
| Quarter Published | March 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice | N/A |
| Entity | Spirent Communications plc |
| Balance Sheet Date | 31 December 2019 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | March 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice |
Recognition of revenue from contracts with multiple elements We asked the company to explain its accounting policy for identifying contracts with more than one distinct performance obligation. We were satisfied with the company’s explanation of its application of the relevant criteria in IFRS 15, ‘Revenue from Contracts with Customers’. The company committed to enhance the accounting policy for revenue recognition and the disclosure of the judgements involved in determining separate performance obligations within contracts with multiple elements. We also sought clarification of significant judgements exercised in relation to the timing of revenue recognition and price allocation across multiple elements. The company acknowledged that there was no incremental judgement, beyond that applied to standalone elements, around the timing of, and price allocation to, individual elements within multi-component contracts, and agreed to clarify the disclosure in this respect. |
| Entity | SSP Group plc |
| Balance Sheet Date | 30 September 2019 |
| Exchange of Substantive Letters (1) | No |
| Scope of Review (2) | Full |
| Quarter Published | March 2021 |
| Auditor (5) | N/A |
| Case Summary / Press Notice | N/A |