FRRP review triggers Investment Company correction

A review of the accounts of the Investment Company plc, from the accounting
reporting panel, has triggered a correction by way of a prior adjustment after
it failed to comply with rules relating to the treatment of participating
preference shares.

The company corrected the way it treated its participating preference shares
for years ended 31 March 2006 and 2007 after it accepted the findings of the
Financial Reporting and Review Panel, which began its review of the company’s
accounts in on 14 May.

In its accounts, the company also admitted that the departure from the
requirements of accounting standard IAS 32 – in the presentation of the PPS as
equity – did not comply with the conditions of accounting standard IAS 1.

Correct compliance with IAS 32 in the accounts to 31 March 2007 would have
reduced net assets and shareholders’ funds from £10,250,900 to £7,753,497 (2006:
£10,456,336 to £7,958,933) and reduced net revenue after taxation of £349,201
(2006: £342,855) to a net loss after taxation of £435 (2006: £50,181).

The Investment Company also disclosed that the shares were incorrectly
accounted for in the accounts for the year ended 31 March 2006 where they were
accounted for as equity in accordance with an earlier version of IAS 32, which
was not applicable to the period in question.

According to the FRRP, the company admitted that the shares ought to have
been treated in accordance with a 2003 revision of the accounting rule (IAS 32)
in the 2006 accounts, and that the statement in the original accounts that their
presentation as equity instruments was in accordance with IAS 32 was incorrect.

The Panel welcomed the revised accounting policy for the treatment of gains
and losses on disposal of non-current asset investments.

The company’s original policy – adopted for both the 2006 and 2007 accounts –
of recognising the gain or loss on disposal in a capital reserve, did not comply
with IAS 39 Financial Instruments: Recognition and Measurement which requires
the gain or loss on disposal to be recognised in profit or loss.

The FRRP is satisfied with the actions taken by the directors today in making
the required adjustments and disclosures in the published accounts for the year
to 31 March 2008, and regards its enquiry closed.

Further reading:

the FRRP’s report on the Investment Company

Related reading

Fiona Westwood of Smith and Williamson.