News September 2015 Findings of the FRC in respect of the accounts of blur Group plc for the year ended 31 December 2013

Findings of the FRC in respect of the accounts of blur Group plc for the year ended 31 December 2013

30 September 2015

PN 55/15

The Financial Reporting Council (FRC) today announces the following matters in relation to the annual report and accounts of blur Group plc (the company) for the year ended 31 December 2013.

The Conduct Committee of the FRC (the Committee) has discussed certain issues with the company following its review of the annual report and accounts.
The principal issues raised were whether the company was principal or agent in relation to the outsourcing services it provided, whether revenue was recognised only when there was sufficient evidence to conclude that the stage of completion could be assessed reliably and that it was probable that economic benefits would be received, and whether the strategic report gave a fair and balanced analysis of the company’s performance. 

The Committee notes the evidence provided by the Directors, set out in the interim accounts for the six months to 30 June 2015 (the 2015 interim accounts), to support their judgement that they are generally acting as principal rather than agent as set out in IAS 18 and that each type of project is assessed on its merits.
The Committee also welcomes the actions taken by the Directors as reported in the 2015 interim accounts where they have:

  • made a prior year restatement reducing reported revenues for the six months to 30 June 2014 by $3,400,257 (year to 31 December 2013 $1,192,284) and costs by $2,832,280 (2013 $1,139,314 including the release of impairment provisions of $174,021) having concluded that there was insufficient evidence to measure the amount of revenue reliably and to assess whether probable economic benefits would flow to the Company as required by their accounting policy for revenue recognition and IAS 18. Subsequent to the respective reporting dates, the contracts concerned were terminated without being successfully completed.
  • made a prior year restatement increasing the loss before tax by $71,819 (31 December 2013 $45,933) and reducing revenue by $447,512 (annual 2013 $229,569) for a change to the revenue recognition accounting policy for listing fees. Previously a proportion of such income was taken on the appointment of an expert service provider, that is, when all parties became committed to a project. The company now estimates progress based on the combined work performed by the company and the appointed expert subsequent to that appointment and no revenue is recognised on the appointment of the expert. Listing fees, which are fees which are payable if a project is cancelled, will continue to be recognised only on cancellation, subject to consideration of recoverability.
  • clarified the company’s revenue recognition accounting policy and undertaken to improve the disclosures regarding supplier risks and uncertainties in their business model.
  • acknowledged that the statement in the Strategic Report in the report and accounts for the year ended 31 December 2014 that the company had achieved five consecutive years of revenue growth should also have explained that revenue from successful projects had decreased by 15% in that year whilst listing fees from projects that had been terminated had increased by some 5 times.   

The Committee notes that certain similar changes were made in the company’s annual report and accounts for the year ended 31 December 2014 published in June 2015. The Committee has now concluded its enquiries.
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, 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.

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, 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.
4. Paragraph 20 of IAS 18 “Revenue” states that, when the outcome of a transaction involving the rendering of services can be estimated reliably, revenue associated from the transaction shall be recognised by reference to the stage of completion of the transaction at the end of the reporting period. The outcome of a transaction can be reliably estimated when all the following conditions are satisfied:

  1. The amount of revenue can be measured reliably.

  2. It is probable that the economic benefits associated with the transaction will flow to the entity.

  3. The stage of completion of the transaction can be measured reliably.

  4. The costs incurred for the transaction and the costs to complete the transaction can be measure reliably.

5. The Conduct Committee maintains a Financial Reporting Review Panel (FRRP). The Chairman is Geoffrey Green and the Deputy Chairs are Joanna Osborne and Ian Wright. There are currently 21 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.