18th Sep 2008 07:44
Financial Reporting Review Panel
Aldwych House, 71-91 Aldwych, London WC2B 4HN
Telephone: 020 7492 2300 Fax: 020 7492 2479
www.frc.org.uk/frrp
FRRP PN 114 18 September 2008
PRESS NOTICE
FINDINGS OF THE FINANCIAL REPORTING REVIEW PANEL IN RESPECT OF THE ACCOUNTS OF WILMINGTON GROUP PLC FOR THE YEAR ENDED 30 JUNE 2007
The Financial Reporting Review Panel ("the Panel") has had under review the report and accounts of Wilmington Group plc ("the company") for the year ended 30 June 2007.
The Panel concluded that the company's treatment of minority put options as contingent liabilities was not in accordance with paragraph 23 of IAS 32 "Financial instruments: presentation" which requires a liability to be recorded for all contracts that contain an obligation to purchase own equity instruments for cash.
The directors have accepted the Panel's conclusions and, in the preliminary results for the year to 30 June 2008 announced today, have corrected the treatment of the minority put options by way of a prior period adjustment. The effect of the adjustment at 30 June 2007 is to increase liabilities from £59.3m to £65.6m with corresponding adjustments to minority interests and goodwill.
The Panel welcomes the action taken by the directors today. On the basis that the required adjustments are made in the full published accounts for the year to 30 June 2008, the Panel regards its concerns as satisfied.
Wilmington Group plc's treatment of minority put options
The company has written a number of put options each of which contains an obligation on the company to purchase the minority holdings in the company's subsidiaries. The options are exercisable during specified periods at prices determined by reference to the performance of the relevant subsidiary. In its accounts for the year to 30 June 2007 the company disclosed a contingent liability for the best estimate of the value of the redemption amount of the minority put options using current levels of profitability.
Under IAS 32, minority put options are contracts which contain an obligation for an entity to purchase its own equity instruments for cash or another financial asset. As these contracts give rise to a financial liability for the present value of the redemption amount, this liability is required to be recognised in the balance sheet itself rather than as a contingent liability in the notes to the accounts.
Notes to editors
The Financial Reporting Council (FRC) is the UK's independent regulator responsible for promoting confidence in corporate reporting and governance. Its functions are exercised principally by its operating bodies (the Accounting Standards Board, the Auditing Practices Board, the Board for Actuarial Standards, the Financial Reporting Review Panel, the Professional Oversight Board and the Accountancy and Actuarial Discipline Board and by the FRC Board. The Committee on Corporate Governance assists the Board in its work on Corporate Governance.
The Role of the Panel is to examine the annual accounts of public and large private companies to see whether they comply with the requirements of the Companies Act 2006 ("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 Panel 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 are defective in a material respect the Panel will, wherever possible, try to secure their revision by voluntary means, but if this approach fails the Panel 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.
Minority puts were discussed by the International Financial Reporting Interpretations Committee. The topic was not taken onto its agenda but the July 2006 IFRIC Update discloses that members believed that there was no diversity over whether to record a liability.
While IAS 32 is clear as to the recognition of the liability, the Panel is aware that there are divergent accounting practices in respect of the corresponding accounting entry when the liability is first recognised and when the amount of the liability is revised. IFRS 3 "Business combinations" revised 2008 is currently being considered for adoption for use in the EU. If the standard is adopted and becomes mandatory for use in the EU, it is likely that changes in the estimated amount of the liability arising from a minority put option will be required to be reported in profit and loss.
The Chairman of the Panel is Bill Knight and the Deputy Chairmen, Ian Wright and David Lindsell. There are currently 24 other Panel members drawn from a broad spectrum of commerce and the professions. Individual cases are normally dealt with by specially constituted Groups of 5 or more members.
All Press enquiries and consultation responses should be directed to Carol Page tel: 020 7492 2460 or at [email protected]
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