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 | Rolls Royce Holdings Plc (3) |
|---|---|
| Balance Sheet Date | 31 December 2022 |
| Exchange of Substantive Letters (1) | Yes |
| Scope of Review (2) | Full |
| Quarter Published | March 2024 |
| Auditor (5) | PricewaterhouseCoopers LLP |
| Case Summary / Press Notice |
Cash flows on settlement of excess derivatives We asked the company to explain the basis for classifying the cash flows associated with the settlement of excess derivatives within financing activities in the Statement of Cash Flows, rather than operating activities, as the cash flows did not appear to fall within the IAS 7 ‘Statement of Cash Flows’ definition of financing activities. The company acknowledged that classification within operating activities would be consistent with the definition of the company’s net debt alternative performance measure, which excluded these derivatives. Consequently, the company has decided to amend its accounting policy and will present the settlement of excess derivatives cash flows within operating activities in the 2023 annual report and accounts and restate the 2022 comparative amounts. Payments in advance of performance The company disclosed significant current and non-current contract liabilities, representing instances where the customer has paid in advance of the company performing its associated obligations. We asked the company to describe the nature and anticipated timing of the contract liabilities disclosed, and how the company has considered the requirements of IFRS 15 ‘Revenue from Contracts with Customers’ regarding the existence of a significant financing component when measuring the associated contract revenue. The company explained the primary purpose for the customer’s payment in advance for these services is for reasons other than to provide financing to the customer. The company has agreed to enhance disclosures in future annual reports to explain management’s judgement in this area. Customer concession credits We asked the company to explain the nature of the contracts which include customer concession credits, how the credits have been reflected in the transaction price, and whether there was any significant judgement or estimation uncertainty associated with them. The company satisfactorily explained the various circumstances that led to these concessions and agreed to enhance disclosures in this area in future annual reports. Risk and revenue sharing agreements (RRSAs) – cash entry fees We asked for some clarification around the accounting treatment applied to RRSAs and the associated cash entry fees, such as why the fees are recognised as a reduction to cost of sales, and whether they differ from the ‘contributions and fees’ presented within the research and development note. The company satisfactorily explained their accounting policy further, and also confirmed that the amounts recognised in the income statement in relation to the RRSAs are not material. Provisions for onerous contracts and impairment testing We asked the company to further explain the impact on its onerous contracts provision of the amendment to IAS 37 ‘Onerous Contracts – Cost of Fulfilling a Contract’ and why no impairment loss had been recognised in respect of these assets before recognising a separate onerous contract provision. The company explained that the risk of impairment of the assets is relatively low, and that the assets have a significantly longer life than the contracts which have been recognised as onerous. Deferred tax assets Significant UK deferred tax assets were recognised in relation to carried forward tax losses which were expected to be recovered by the taxable profits generated by new civil aerospace large engine programmes over timeframes in excess of 30 years. Given that these programmes are typically loss-making in their investment phases, we asked the company to provide more detail about the timeframe over which the deferred tax assets were expected to be recovered. The company explained their judgements associated with the recognition and measurement of the assets and clarified that the forecasts of taxable profits only include existing engine programmes, with an assumption of a certain level of research and technology investment. The company confirmed that it would provide additional clarity over the timeframe of recovery of the deferred tax assets in the 2023 annual report. |