UK Technical query- what constitutes a post balance sheet event?

[AnAspiringAccountant]

Hi.

Currently doing some research for purely interest but also as I have an interest in accounting and what better place to come than an Accounts forum! Yet I am looking at accounting as I'm alright with numbers.

Already touched upon it elsewhere on the forum but this is quite specialised so...

Under FRS 102 etc, should something at the Land Registry nearly a year on from the accounting period expiry, nearly 2 months on from due date at CH be listed as a Post Balance Sheet event or is it the case that it should be in the following accounts? Eg appear in accounts to July 31 2018 but appear in the following year.

Here is an example.

22 Events after the reporting date
On 1 September 2018 the company issued 21,000,000 ordinary shares at par value to Mr D Chansiri.
On 14 June 2019 the company became a wholly-owned subsidary of Sheffield Wednesday Holdings Limited, a company registered in Hong Kong, as a result of a share for share exchange.

This puzzles me because the accounts reporting period ran until 31st May 2018- adjusted at some unknown date to 31st July 2018, were due at CH on February 28th 2019 and then adjusted to April 30th 2019 owing to the 2 month shift...yet the £60m sale at Hillsborough it appeared at the Land Registry on 28th June 2019.

Should it not therefore have appeared under Post Balance Sheet events as opposed to:

23 Related Party Transactions
Transactions with Related Parties
Mr D Chansiri is a director of Sheffield Wednesday Football Club Community Programme. During the year, the company recharged amounts to SWFC Community Programme for expenses incurred on their behalf.
Mr D Chansiri is also a director of Elev8 Energy Drink and Elev8 Clothing Ltd.
Income of £61,266,677 was receivable from related parties in respect of transactions recognised in these financial statements.
There are no other related party transactions to disclose.

Was for £60m off a £22.25m valuation at DRC and a £6.4-6.5m revaluation reserve- land prices in Sheffield near floodplains must be through the roof post Brexit!

I guess my technical q is whether it should appear in an RPT, a Post Reporting Date event- or whether the latter will appear in their next accounts as one?

Plus DLA Piper lodged an application seemingly in July 2019- reported on SWFC forum on July 4th 2019.

https://www.owlstalk.co.uk/forums/uploads/monthly_2019_07/573D8B19-FE51-4751-A1C8-B7F75176D271.thumb.jpeg.9dc590530b017dec2d7b9cc92505a230.jpeg

Ground sale to go through shortly?

Just been told DLA Piper solicitors have lodged an application to HM Land Registry, my brother has had an email alert. Assuming it's to transfer ownership

www.owlstalk.co.uk

 

[Fidget]

Events after reporting period are nothing to do with the due date for filing at companies house. Events after the reporting period are material events that happen in the window of time between the reporting period end date, and the date that the financial statements are signed off as complete/ready for issue by the authorised signatories.

There's basically two types of events - adjusting and non-adjusting. If the event relates to something going on before the period end date, then the financial statements are adjusted to reflect it. If not, then the event is disclosed in the notes to the accounts but the accounts are not adjusted.

There's also the issue of materiality. If the event is not material, then no adjustment/disclosure is required.

 

[AnAspiringAccountant]

Thanks.

So between May 31st 2018- latterly July 31st 2018- and June 20th/June 21st 2019 then, in this instance?

I'd say it was an adjusting event- £38m profit on transaction, turned a major loss into a profit of £2.5m!

Is a £38m profit on a fixed asset sale and leaseback considered material or what? Can only assume it was ongoing before July 31st 2018 then, yet the Land Registry date, and solicitors papers for said Land Registry show a different story.

It now gets interesting however.

https://twitter.com/i/web/status/1176594376555933697

 

[Fidget]

I'm not sure where you're going, or trying to get to, with this but;

* The sale of the stadium is in the accounts, and the accounts weren't signed off until 20 June 2019.
* The annual report and accounts has been through an independent audit without a modified opinion.

I think you might be chasing your tail looking for accounting inconsistencies because it seems that it's more about clubs doing what they need to do so that they don't fall foul of the EFL's own rules/regulations rather than any dodgy accounting going on.

 

[AnAspiringAccountant]

I'm not sure where you're going, or trying to get to, with this but;

* The sale of the stadium is in the accounts, and the accounts weren't signed off until 20 June 2019.
* The annual report and accounts has been through an independent audit without a modified opinion.

I think you might be chasing your tail looking for accounting inconsistencies because it seems that it's more about clubs doing what they need to do so that they don't fall foul of the EFL's own rules/regulations rather than any dodgy accounting going on.

Really, I suppose my main point is which regulation allows for this, I've looked at them and it seems tricky. Post Balance Sheet? Mike McCarthy of BBC Sheffield who stated that it was a Post Balance Sheet Event couldn't or wouldn't elaborate when a Twitter user asked them to do so and state where on the accounts it appeared, or

Accounts that were due at CH by 30th April 2019. Auditor signed it off the day later on 21st June 2019.
Auditor signed it off, yes- but then auditors are not seen or have not been seen as infallible as they once were.

Haha, maybe a little? Still, the fact the EFL are investigating this does make me wonder. You may note that they are not asking Derby for this because Derby's transaction was stated to have taken place at Land Registry on 28th June 2018- for an accounting period that ran until 30th June 2018. The company who brought it were also incorporated at CH within the time frame too. The company who purchased Hillsborough was incorporated on 21st June 2019 at CH- again that may not be the be all and end all. I also note that Aston Villa's company who purchased it was already in existence within the period and it stated at the Land Registry that it took place by May 31st 2019- so again from that angle I don't see an issue.

The only thing I can think of at this stage is that a contract was in place that existed up to or including 31st July 2018, but that the transaction took place some time later.

Why though would DLA Piper do as they did in July 2019 if it took place by July 31st 2018? Not that I am suggesting that 28th June 2019 is incorrect but how can that appear in a Reporting Period that runs until July 31st 2018?

https://pbs.twimg.com/media/ECfVXdPWkAAViUL.jpg:large

Nothing at all to indicate though, that the transaction should have taken close to 11 months! Like I say, pre-existing contract changes the equation, but that aside I'm struggling a bit!

 

[Fidget]

Yep, it's true audit gets some bad press over corporate scandals. But this is Sheffield Wednesday FC. It's hardly a multi-national corporation, and looking at its accounts, there's not a lot to them so it's highly unlikely this sale would've been overlooked. Audit will have been all over it in terms of getting the evidence that title has passed. Just my opinion of course - they might well have been in cahoots with the club in some dodgy dealing, but probably not.

But, 'Title passing' is crucial in accounting because that's the point when you recognise the revenue from a sale in your accounts. It doesn't matter at which point you actually get the money, it's the point in time that title passes that matters. So, it could be that the contract of sale was legally binding in the financial period, with the agreement that the money would be paid at a later date. It's not out of the ordinary.

The land registry link you've posted says:

But all that tells us is that £60m was paid on 28 June 2019 and the title subsequently registered with land registry. It doesn't tell us anything about when the contract of sale was signed. What the land registry's rules/deadlines are for when property must be registered with them, I don't know. But they're not going to be aligned with accounting standards on revenue recognition.

SW are going to have to respond to EFL's question anyway, so from that will come your answer I think. Don't forget to tell me the outcome - I'm quite intrigued now.

 

[AnAspiringAccountant]

Thank you, this clears a few things up. So if I am understanding this right, what you're saying is that if the contract was in place/drawn up by July 31, then all okay? The date of the contract, when it was drawn up, with obligation/provision to buy sounds like it's pretty important here!

I am intrigued also- both from a Football POV and an accounting one. Will certainly keep myself- and therefore you- in the loop on it.

That's not to say they are out of the woods yet, because of course if it is overvalued- £60m, it can be adjusted down to whatever EFL appointed valuers deem the fair market value to be for FFP purposes- but the more serious allegation of dodgy accounting methods would be averted. On this latter point, the same applies for Derby, Reading- and though it happened in the last season, if proven in the PL, Aston Villa. (Pride Park- £81.1m, Madjeski Stadium- £26.5m- and in the PL, Villa Park- £56.7m).

It's certainly a pretty new practice in football though- selling a fixed asset- the biggest fixed asset, the ground- to a company controlled by the owner, or part of the group to try to comply with FFP regs! UEFA Regs though exclude profits from these transactions from the calculations, UK- not so much.

 

[Fidget]

Yes, you're understanding it right, and looking again at the accounts, if you look at "Other Debtors" in the notes to the accounts, there's two amounts:

* Debtors amounts due within 1 year: Other Debtors: £7.5m and;
* Debtors amounts due after 1 year: Other Debtors: £52.5m.

The total of those is £60m, which is the sale price of the stadium. So it does seem that it's been a "buy now, pay later" sale.

 

[AnAspiringAccountant]

Yeah, I noticed that. Thanks.

Puzzling because- well accounting rules can be so creative can't they that you can bank £60m (well around a £38m profit) in one year yet it shows on the cash flow as 8 years or £7.5m in that season and £52.5m subsequently!

My concern there is that they benefit twice in effect- or is that just a technical, structural point? What I mean by that is- £60m in Year 1, whereas it's only £7.5m from Debtors amounts due.

Then over the subsequent, for simplicities purposes let's say 7 years, they gain £7.5m in income/to offset losses for each of these. That can't be right surely.

Still, the question of whether it is truly deemed to be worth £60m will be very interesting, but that's not really an accounting point I guess.

 

[Fidget]

If the whole £60m is paid within one year, then that's it paid in full. There'll be no further amounts to receive. If that's what's happened, then the debt has just been settled earlier than expected or agreed.

From the viewpoint of the financial statements, it doesn't make any overall difference to the presentation of them. The P&L would still have reported the same year-end profit had the £60m being paid in the period. The only difference would be in the balance sheet. Instead of showing a debtor for the amount, the £60m would be shown as being in the bank account.

 

[AnAspiringAccountant]

Thanks for that- it puts my mind at rest.

The investigation continues.

EFL step up investigation into Derby, Sheffield Wednesday and Reading stadium sales

The English Football League has appointed leading QC's at Blackstone Chambers as they step up their investigation into the stadium sales of three Championship clubs.

www.telegraph.co.uk

 

[AnAspiringAccountant]

BOOM!!

https://twitter.com/i/web/status/1195025788413894662

It would appear that there is a case to answer- for Sheffield Wednesday at this stage.

Note- this relates to the Reporting period vs transaction date. The question of whether the ground was overvalued is either moot or still being investigated along with Derby, Reading, Sheffield Wednesday and in the PL, Aston Villa!

@Fidget you might be interested in this latest development.

 

[Fidget]

This is on the beeb today about it:

Owls charged with spending rules breach

Sheffield Wednesday are charged with breaking the EFL's financial rules following the sale of their ground to owner Dejphon Chansiri.

www.bbc.co.uk

The football finance expert's comments are interesting.

 

[AnAspiringAccountant]

They are- not seen his latest ones yet, but it looks like things have escalated somewhat...

Exclusive: Sheffield Wednesday chairman could be banned from football over stadium deal

Dejphon Chansiri, the Sheffield Wednesday owner, is facing further scrutiny after being charged with misconduct by the English Football League.

www.telegraph.co.uk

 

[AnAspiringAccountant]

Club statement

Sheffield Wednesday Football Club has today filed its response to the charges brought against it by the English Football League for alleged misconduct concerning the sale and leaseback of Hillsborough stadium and the inclusion of the profit on that sale in the Club’s 2017/18 accounts.

www.swfc.co.uk

Stakes raised!!

Were it down to my mate who is an ardent Bristol City fan, they'd think about looking at scope for suspension here- suspension of membership.

Still though, things are definitely getting very interesting.

The reaction of a sizeable minority of their fanbase, makes me want them to get hammered tbh. "We're Wednesday, we'll do what we want" mindset!

 

[Fidget]

Sounds like the EFL might have some questions to answer about how it operates as well now!

 

[AnAspiringAccountant]

Yeah, quite possibly. It's worth stressing that they are still confident about their case.

The last CEO...ha what can I say about him without running into possible issues.

 

[AnAspiringAccountant]

Hi @Fidget

A couple of updates you might be interested in. Hope you are keeping well and safe in these extraordinary times.

Update 1. The charges against Chansiri, Meire and Redgate were dropped by the EFL.
Update 2. Derby were charged in January- the Pride Park valuation (see my first thread debating valuations) as per the EFL commissioned one came out at £49-50m. A slight differential to the sale price of £81.1m, this latter price presumably based on an independent valuation commissioned by Derby.
Update 3. EFL were pressing charges against Birmingham too. The Independent panel found no case to answer or maybe a small one not worthy of punishment. The EFL have subsequently appealed this...
Update 4. Sheffield Wednesday hearing to be in July. Their counterclaims, possibly via arbitration, appear to have stalled or failed.
Update 5. Footnote in the article about Sheffield Wednesday also claimed that Derby's case would be heard within a similar time frame.

 

[AnAspiringAccountant]

Hi @Fidget

Hope you are well- some more updates and hope you are still keeping well and safe.

1) Sheffield Wednesday deducted TWELVE points- to take effect in 2020-21 season- there is some fury among clubs that the points have not been docked in the season in which they were charged- 2019/20. Given they were charged on November 14th 2019 IIRC, it's fairly unacceptable IMO. However it's odd- despite having stuck it in the incorrect reporting period/season this was not it seems grounds for an aggravated breach- how can you do that in good faith? The maximum penalty points wise can be up to 21.
2) They shouldn't have stuck it in that season basically. I also have very deep reservations about the valuation but that's for another day.
3) Their hearing was apparently from 22nd-26th June 2020- amazing that it took 5 weeks for the verdict to come out.
4) Birmingham- Received a reprimand, that's win-win and really their case was low but enables the EFL still to keep a bit of an eye on them still.
5) Derby- should be coming out soon I'd have thought. Think their hearing was in early July. Began 13th July apparently, they were charged on January 16th 2020- again ridiculous how it has dragged out. Their case is even more interesting- Stadium valuation AND allegations over incorrect amortisation methods.

PPS- Both sides have the right to appeal, Sheffield Wednesday may appeal over the verdict, clubs may push the EFL to appeal over it not being in 2019/20- the reason that is so controversial is that -12 would relegate Sheffield Wednesday in 2019-20, whereas in 2020-21 they will have a chance to battle out of it.

Charlton are already examining their options, I'd say Wigan- in admin should be watching it closely, and Barnsley if Wigan's admin penalty gets overturned (it is usually a straight 12 points but there may or may not be extraordinary circumstances, as in a new owner took them over and put them into admin right away- rumours of betting on relegation in the Far East)- if that gets overturned then Barnsley will be an aggrieved party on two fronts and Charlton, god knows!

 

[AnAspiringAccountant]

Hi @Fidget

Hope you are well.

1) Apparently Sheffield Wednesday choosing to do the stadium thing but not executing it in time was deemed a factor of such mitigation, this was post appeal, to halve the deduction- unbelievable!
2) Derby were found innocent of both the Stadium valuation plus the Amortisation method.

On the latter case, the EFL/Football League have appealed the Second Charge, ie the Amortisation- they did it for Intangible Assets (Player Registrations) using Residual Value as opposed to Straight Line- ie 4 year deal, 25% per year for Straight Line Amortisation, Residual Value feels a lot more variable!

Indeed, a report in Saturday's Times- on a largely unrelated story about a possible live/outstanding FA Charge for Derby County, unrelated to this case but financially related and that came about in 2017.

Anyway, the article mentioned that the EFL have submitted their appeal with respect to the Amortisation issue and that additional documents have been submitted.