LAPFF writes to UK Accounting Standards Endorsement Board (‘UKEB’)- to ensure it has the correct endorsement criteria for accounting standards

June 3rd 2021

Reliable accounts


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Bad accounts and bad audits are likely to mean that investments are worth less or are even worthless. Having the correct endorsement criteria for accounting standards is a significant matter of public interest.

In light of the collapses of HBOS plc, Cattles plc, The Bank of Scotland plc, the Royal Bank of Scotland, Northern Rock, Co-op Bank, Thomas Cook and Carillion, it clear there are systemic problems with accounts and audits; added to that there were accounting problems at Tesco in 2013; and more recently alleged frauds at NMC Health, Wirecard, Finablr and Patisserie Holdings, all of which are now delisted and in administration.

LAPFF believes that it is not possible for the UKEB to simply adopt the position of the Financial Reporting Council (‘FRC’) regarding the “true and fair view” requirement and has asked the UK Accounting Standards Endorsement Board to clarify its position.

The matter in question does not relate to the disclosure of a single figure for distributable profits, a Freedom of  Information request has shown this was a distraction from the issue at stake. [1] Instead, the issue at stake does relate to the segregation of profits and reserves between realised (cash based) and unrealised (valuation) amounts.

The distinction between realised and unrealised profits is necessary in first instance.

Being able to distinguish between cash or near cash (realised) or non-cash (unrealised) items is essential to determine whether a company is capable of being a going concern or not. A company may not be a going concern if it cannot service debt and cover ordinary costs and – absent additional sources of funds or guarantees – that requires cash flows from profits, not unrealised gains.

Phantom ‘profits’ and phantom ‘net assets’ will create a risk of a phantom ‘going concern’.

In attempting to look like it was dealing  with the issue, but going about it the wrong way – i.e. not addressing whether accounts are reliable or not – the FRC issued a report in December 2016 from its “Financial Reporting Lab”, page 8 of which, set out the accounts of Carillion plc as an example of “good practice” disclosure of dividend policy.

Carillion then collapsed on 15th January 2018.  The FRC missed, inter alia, that Carillion was dependent on supply chain financing, had huge amounts of carried goodwill – arising from purchases which had been followed by Carillion’s own share price falling – too much debt and had imprudently accounted for contracts, taking profits that then never emerged.

Other FRC publications contradict the FRC’s position

Contradictory to the FRC’s rebutal of the position of LAPFF, the extant FRC Guidance for auditors from October 2008, states, that an auditor is responsible for signing off on the profits, because “a disclaimer of opinion on the financial statements as a whole would be material as the auditor would be unable to form an opinion on the amount at which the company’s distributable profits are stated“[2] .

That FRC document also confirms that auditors sign-off on undistributable reserves as stated in the accounts: “with respect to the auditor’s responsibility the auditor’s statement states that it is limited to an examination of the relationship between the company’s net assets and its called up share capital and undistributable reserves as stated in the audited balance sheet“[3].

The UKEB’s reply will be posted on this site once received.



No reply has been received, and this letter has now been sent in response.

.See also: Fraud and going concern.



1 Freedom of information request FOI2016-07497 2015

2 page 5 para 13

3 page 22 para 49