News October 2013 Findings of the FRC in respect of the accounts of WH Smith Plc for the year ended 31 August 2012

Findings of the FRC in respect of the accounts of WH Smith Plc for the year ended 31 August 2012

10 October 2013

PN 089

The Financial Reporting Review Panel (FRRP) of the Financial Reporting Council’s Conduct Committee has reviewed the annual report and accounts of WH Smith Plc (“the company”) for the year ended 31 August 2012.

The principal issue arising from that review related to the company’s decision not to recognise as a liability in its accounts a schedule of contributions prepared under section 227 of the Pension Act 2004 between a subsidiary of the company and the company’s pension trustee.  The company did not view the schedule of contributions as a minimum funding requirement to be accounted for in accordance with IFRIC 14 ‘IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction’.

Following correspondence with the FRRP, the company has accepted that the schedule of contributions is a minimum funding requirement within the meaning of IFRIC 14 and should have been accounted for as a liability in its accounts for the year ended 31 August 2012.  

To reflect this conclusion, the company has restated the comparative amounts to the results reported in its 2013 preliminary announcement, published today. The effect of recognising the liability on the comparative amounts is to reduce net assets at 31 August 2012 from £149 million to £95 million (at 31 August 2011, a reduction of net assets from £156 million to £94 million). Profit after tax for the year ended 31 August 2012 has been reduced by £4 million. There is no change to profit before tax and no impact on cash.

Following the corrective action taken by the company, the Conduct Committee regards the enquiries arising from its review of the company’s annual report and accounts for the year under review, initiated on 23 May 2013, as concluded.

Notes to editors:

  1. 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.

  2. The Conduct Committee is a body authorised under the Companies Act 2006 (‘the Act’) to review and investigate the annual accounts 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.

  3. 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 or directors’ report are defective in a material respect the Conduct Committee will, wherever possible, try to secure their revision by voluntary means, but 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.

  4. Paragraph 5 of IFRIC 14 defines a minimum funding requirement as any requirement to fund a post-employment or other long-term defined benefit plan.

  5. Paragraph 24 of IFRIC 14 requires that, to the extent that the contributions payable under a minimum funding requirement will not be available after they are paid into a plan, a liability should be recognised when the obligation arises.

  6. The Conduct Committee maintains a Financial Reporting Review Panel (FRRP).  The Chairman is Richard Fleck and the Deputy Chairs are Joanna Osborne and Ian Wright. There are currently 24 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.