ECB Accounts Inaccurate

This post is a sideonview exclusive which reveals an error in the ECB's accounts for the year to 31 January 2021.

The issue was netting off grant payments against costs rather than disclosing separately and was originally covered in this blog, here. I also raised the point with the Financial Reporting Council who have reviewed the treatment by the ECB of grant income received.  The text of the review is here and is reproduced below.

Grant income

"We asked the company to quantify the funds received from HMRC for the furlough of staff and to explain why the payroll costs were offset by the related income, which is not permitted by FRS 102 or the Companies Act 2006.

The company confirmed that the funds received of £1.7m for the furlough of staff had been incorrectly offset against administrative expenses. However, it concluded that the effect of this error and the amount to be disclosed was not material. The company provided us with an analysis to support their view.

We also requested the company clarify its accounting for other grant income, for which the company provided a satisfactory response."

As can be seen the ECB has admitted to understating both 2021 income and expenses by £1.7m.  However, it has convinced the Financial Reporting Council that the error was not material i.e. the misstatement could not reasonably be expected to influence the decisions of the primary users of the ECB's financial statements.

Materiality is a very subjective concept but I can see the point that disclosing wages and salary costs of £43m rather than the correct £44.7m might be seen as immaterial and it should be stressed that the net income for the period was not incorrect as the £1.7m error on expenses was matched by a £1.7m understatement of income.

However, as I've said before this error shows the ECB's accounting is not at the level required of an important organisation.  It has either just missed a fairly basic point (the treatment of grants got a lot of coverage in 2021 as so many companies were in receipt of coronavirus payments) or it knew its accounts were wrong and simply went ahead with its preferred disclosure, neither explanation is acceptable.