Findings of the Financial Reporting Review Panel in respect of the accounts of Sports Direct International plc for the year ended 26 April 2015
08 December 2016
The Financial Reporting Council (FRC) today announces the following matters in relation to the annual report and accounts of Sports Direct International plc (the company) for the year ended 26 April 2015.
The FRC has discussed certain issues with the company following its review of the 2015 annual report and accounts.
The principal issue arising related to whether the 2015 strategic report complied with the Companies Act 2006 requirement to be balanced and comprehensive.
In this regard the FRC noted that:
- there was no discussion of the development and performance of the company’s international stores in its Sports Retail division, which represent a significant part of the company’s operations in terms of the number of stores, total revenue, operating result and gross profit;
- one of the company’s key performance indicators, Sports Retail like-for-like stores gross contribution, excludes stores that have not been owned by the company for the full 12 months in both periods. Therefore, in 2015 this key performance indicator excluded the contribution from the stores in Austria and the Baltic states acquired in 2014; and
- there was no discussion of the performance of these stores or their effect on the company’s results.
The FRC noted the continuing lack of discussion about Sports Retail’s international stores in the 2016 strategic report even though the key performance indicator of Sports Retail like-for-like stores gross contribution did include the stores in Austria and the Baltic states and this measure had decreased to (0.8%) from 7.4%.
On the basis of information provided by the company, the FRC also considered whether the aggregation of the UK and international Sports Retail stores was in accordance with IFRS 8 ‘Operating Segments’.
Following discussion with the FRC the directors have decided to include specific commentary about Sports Retail’s international stores in its narrative reporting, including the strategic report, and to present separately segmental information about these stores in the accounts. This has resulted in the additional information in the commentary provided in the company’s 2016 interim results, announced today, and the restatement of comparative amounts in the segmental disclosures. These changes will also be reflected in the company’s 2017 annual report and accounts that it expects to publish in August 2017.
Following the corrective action taken by the company, the FRC regards the enquiries arising from its review of the company’s annual report and accounts for the year ended 26 April 2015, initiated on 26 February 2016, as concluded.
Notes to Editors:
- The FRC is responsible for promoting high quality corporate governance and reporting to foster investment. We set the UK Corporate Governance and Stewardship Codes as well as UK standards for accounting, auditing and actuarial work. We represent UK interests in international standard-setting. We also monitor and take action to promote the quality of corporate reporting and auditing. We operate independent disciplinary arrangements for accountants and actuaries; and oversee the regulatory activities of the accountancy and actuarial professional bodies.
- The FRC’s Conduct Committee is a body authorised under the Companies Act 2006 (the Act) to review and investigate the annual accounts, strategic and directors’ reports of public and large private companies to see whether they comply with the requirements of the Act, including applicable accounting standards. Following implementation of the Accounting Regulation (EC) No. 1606/2002, this may mean compliance with UK or International Financial Reporting Standards.
- Where breaches of the Act are discovered the Conduct Committee seeks to take corrective action that is proportionate to the nature and effect of the defects, taking account of market and user needs. Where a company’s accounts, strategic or directors’ report are defective in a material respect the Conduct Committee will, wherever possible, try to secure their revision by voluntary means. If this approach fails, the Conduct Committee is empowered to make an application to the court under section 456 of the Act for an order for revision. To date no court applications have been made.
- Section 414C of the Companies Act 2006 states that the purpose of the strategic report is to inform members of the company and help them assess how the directors have performed their duty under section 172 to promote the success of the company. It requires the strategic report to contain a fair review of the group’s business that is a balanced and comprehensive analysis of its development and performance during the financial year, and its position at the end of that year.
- The core principle of IFRS 8 ‘Operating Segments’ requires an entity to disclose information that enables users of its financial statements to evaluate the nature and financial effects of the business activities in which it engages and the economic environments in which it operates.
- Paragraph 12 of IFRS 8 permits two or more operating segments to be aggregated into a single operating segment if aggregation is consistent with the core principle of the standard, the segments have similar economic characteristics and the segments are similar in each of five specified criteria.
- The Conduct Committee maintains a Financial Reporting Review Panel (FRRP). The Chairman is Geoffrey Green and the Deputy Chairs are Joanna Osborne and John Hitchins. There are currently 25 other members drawn from a broad spectrum of commerce and the professions. Individual cases may be dealt with by a specially constituted Review Group of the FRRP.
- On 28 November 2016 the FRC announced investigations under the Accountancy Scheme and the Audit Enforcement Procedure in relation to the preparation, approval and audit of the financial statements of Sports Direct International plc (Sports Direct) for the 52 week period ended 24 April 2016. These decisions follow reports of an arrangement between Sports Direct and Barlin Delivery Limited which was not disclosed as a related party in the company’s financial statements.