ECB ACCOUNTS 2020 - 2021

 A follow up to my post on the ECB's accounting for coronavirus furlough payments

This covers what I think has happened, what should have happened and why it matters.

What Happened

Note 4 to the 2020 -2021 accounts, "staff costs",  included the following explanation for the sharp increase in staff costs in the period.

" As well as the change in the average number of employees, the increase is also due to higher player salaries linked to the new media rights cycle and one-off redundancy costs arising from the restructuring exercise during the year. These factors were offset by funds received from HMRC with respect to the furlough of staff during the year."

That final sentence seems to me to say the furlough payments were netted off the wage costs.  So, as an example, say staff costs were £10m (they were way more but....) and furlough payments £1m,  I think the ECB would have disclosed staff costs of £9m.  The alternative to this is the grants could have been shown as £1m income and the salary costs shown as the full £10m.

I think the ECB has netted furlough payments off salary costs, firstly because of the note 4  disclosure and secondly because if the salary costs are disclosed as income it's not apparent where that income is in the accounts.  It certainly shouldn't be in turnover and the only other category of income disclosed is "other interest receivable and similar income."

What Should Have Happened?

The Companies Act strictly prohibits the netting off of items of income and expenditure. See The Large and Medium - sized Companies and Groups (Accounts & Reports) Regulations 2008.

 "Amounts in respect of items representing assets or income may not be set off against amounts in respect of items representing liabilities or expenditure (as the case may be), or vice versa."

The ECB prepares its accounts under "UK GAAP" as set out in FRS 102 & FRS 102 paragraph 2.52 echoes the Companies Act prohibition against netting off.  

So using the above example the ECB is required to account for furlough payments of £1m & salary costs of £10m, but it seems to have chosen to  disclose the net salary costs of £9m.

Does It Matter?

Let's assume I'm right and the ECB has netted off furlough costs against wage and salary costs, does it matter?  

I think that does matter but it's important to have some perspective.  The ECB's accounts show a deficit of £16m for the period.  I'm not for a second suggesting that figure is incorrect.  

But, it seems to me, the way the ECB has disclosed the figure is illegal.  And that failure of disclosure isn't a mere technicality.  The ECB's accounts are the one place we get to see how much money accrues to the ECB as income, how much is spent within the ECB and how much trickles down to counties, clubs and community projects.  And these accounts  show neither the true amount of income nor the true amount of ECB in house expenditure.  That's misleading and is why the Companies Act prohibits netting off.  

Also the relatively small accounting infraction gives us a glimpse into the way the ECB works. The ECB wasn't exactly the only company in the UK to receive furlough payments and up and down the country accountants were scratching their heads and asking "so what do I do with these then."  There's lots of articles on the internet to help them but still the ECB choose to do something different (probably) and their auditors signed it off.  It's not a great look.