UK FRS 102- Covid add-backs

[AnAspiringAccountant]

What constitutes a Covid add-back? Under FRS 102.

Cleary I accept the principle of Cost incurred and Revenue lost.

What about profit on disposal of items that would have been budgeted for- but for Covid.

In football a regular function is Profit on disposal of players registrations. In short, a transfer fee exceeding the remaining book value- this is not a revenue but a profit on disposal albeit one that cannot be guaranteed.

Have noticed a phenomenon post Covid of some clubs seeking to 'add-back' profits/revenue from transfers that would have occured but for Covid. My club Bristol City are one but have also seen it in respect of Aston Villa, Everton, Nottingham Forest and Stoke.

How permissible is this under FRS 102? Active market required surely as well as a willing buyer and seller. Seems like a nonsense to me as a profit on disposal of a player or players is by no means guaranteed and can fluctuate even in normal times. We sold quite a lot prior to Covid but the other argument is that we ran out of good players to sell!!

 

[Fidget]

Is there anything in the notes to the accounts that explains it? Whilst they hit the P&L, gains/losses on disposals are non-cash items that are adjusted for in cash flow statements and tax on profits calculations - a loss is added back and a gain is deducted. So it sounds odd if a gain is being added back.

 

[AnAspiringAccountant]

I totally agree with you and thank you.

Our argument as a club is basically that Covid 19 has cost us £x in transfer revenue, from player sales.

I think that it is a nonsense and unquantifiable. Likewise for Impairment being included as a Covid cost but some snapshots on the way...

By point 2 I mean writing down valuation of the relevant Intangible assets but arguing that it is a cost caused by Covid and the impact on the transfer market- therefore should be excluded from the losses.

Sadly we have put nothing in the accounts that lays out specific arguments numerically.

 

[AnAspiringAccountant]

To me, the bits pertaining to lost revenue and additional costs are sensible.

The bits pertaining to Impairment of value caused by Covid-19 and met impact of lost player disposals are not!! That would be transfer fee minus carrying value. Then savings on wages and amortisation that they claim would have been realised but for Covid.

How does FRS 102 allow for this- even in the era of Covid?

 

[AnAspiringAccountant]

Plus, in the Premier League and Championship see also...

Aston Villa

£13.4-14m is Aston Villa's estimate across the two seasons relating to the transfer market and lost revenue, extra savings..but wait until you see Everton!!

Everton

They were making the odd huge loss even before Covid btw but they seem to have argued that it cost them somewhere between £65-88m in the transfer market across 2019-20 and 2020-21! The losses are seemingly uncrystalised.

Fulham argued about £20.9m of Player Impairment when relegated in 2020-21 should be assigned as a Covid cost.

Nottingham Forest seem to have not laid out what they anticipate to be transfer market related. Maybe £10-15m across 3 seasons?

 

[AnAspiringAccountant]

Some of this smacks of clubs trying to swerve FFP issues and or wipe the slate clean a bit. Sadly I include my club in that! There was a claim earlier in 2022 that we believe Covid has cost us £30m in the transfer market/revenue. Maybe a net figure of lost sales, lost loan fees, cost of amortisation from players staying longer plus wages of course.

 

[Fidget]

I haven't read all of that to be fair, but a bit that sticks out is this:

I could be wrong, but it reads to me that the English Football league has had concessions agreed with FRC that allow it to deviate from the normal application of FRS102 because it's saying that it's guidance from the EFL... but at the same time, not prepared in accordance with FRS102.

Have you thought about pinging FRC a F.O.I request about it? It might transpire that EFL can have its own interpretation of how to apply accounting standards. Central Gov does that - generally follows IFRS, but adapted/amended in the case of how to apply the standards.

 

[AnAspiringAccountant]

I haven't read all of that to be fair, but a bit that sticks out is this:

View attachment 1051
I could be wrong, but it reads to me that the English Football league has had concessions agreed with FRC that allow it to deviate from the normal application of FRS102 because it's saying that it's guidance from the EFL... but at the same time, not prepared in accordance with FRS102.

Have you thought about pinging FRC a F.O.I request about it? It might transpire that EFL can have its own interpretation of how to apply accounting standards. Central Gov does that - generally follows IFRS, but adapted/amended in the case of how to apply the standards.

Evening Fidget, appreciate the response.

I actually did send them an email but no reply whatsoever- even posted some illustrative examples. FOI may be the way to go or a way forward- will look to work on this over Christmas.

Could be the case, for example profit on disposal of fixed assets is now excluded from P&S/FFP returns, as is putting a revaluation reserve through Profit and Loss among some other items.

The only issue I have with it is that Derby were done basically because their amortisation method was deemed non-compliant with FRS 102 and accounts must be submitted in accordance with FRS 102, the Companies Act etc so it's a bit of a mystery really.