Panel forces GRE profit cut
General insurer Guardian Royal Exchange (GRE) capitulated last week to demands from the Financial Reporting Review Panel that it should slash #33m from its 1996 profits, and adjust its current year results to comply with rules governing the treatment of reserves, writes Phillip Inman.
The decision is a blow to the company, which gave in reluctantly to the ruling in time to include the 5% adjustment to profits in its latest report and accounts produced last week.
GRE’s auditor Price Waterhouse has expressed discontent with the FRRP opinion but refused to comment on the outcome. A GRE spokesman said: ‘We took advice and were told it was against accepted accounting principles.’
The dispute centres on whether general insurance companies should include equalisation of reserves in their subsidiaries in the consolidated accounts.
In 1996, an EU directive required general insurers to set aside funds to smooth out fluctuations in future liabilities. The law insisted the funds should be treated as charges against profits and liabilities in the accounts.
The Auditing Practices Board said in a bulletin that the policy was consistent with a ‘true and fair’ view of provisions in the accounts. But GRE remained determined to exclude the equalised reserves. It said true and fair accounting principles ruled out the idea that future liabilities could be charged to current year profits.