The following is an extract from the Financial Repor ting Review Panel website (www.frrp.org.uk)

relating to the Wiggins Group showing the restated financial results.

Year 1995 1996 1997 1998 1999 2000 Turnover As published 6.4 6.9 19.9 17.8 26.7 49.8

(£m) Adjustments (1.5) (2.6) (15.6) (6.7) (21.6) (42.5)

Restated 4.9 4.3 4.3 11.1 5.1 7.3 Profit/(loss) As published 0.7 1.0 4.9 5.1 12.1 25.1 before tax Adjustments (1.3) (1.9) (10.2) (8.5) (17.2) (35.0)

(£m) Restated (0.6) (0.9) (5.3) (3.4) (5.1) (9.9)

Basic EPS As published 0.14 0.20 0.66 0.64 1.21 2.87

(pence) Adjustments (0.26) (0.38) (1.67) (1.14) (1.91) (4.06)

Restated (0.12) (0.18) (1.01) (0.50) (0.70) (1.19)

Net assets As published 10.2 11.4 17.5 37.5 52.2 45.8

(£m) Adjustments (1.3) (3.2) (12.0) (19.8) (33.8) (35.4)

Restated 8.9 8.2 5.5 17.7 18.4 10.4 Revenue recognition The 1999 accounts contained an accounting policy for turnover in the following terms:

Commercial proper ty sales are recognised at the date of exchange of contract, providing the Group is reasonably assured of the receipt of the sale proceeds.

The FRRP accepted that this wording was similar to that used by many other companies and was not on the face of it objectionable. In reviewing the company’s 1999 accounts the FRRP noted that the turnover and profits recognised under this policy were not reflected in similar inflows of cash; indeed, operating cash flow was negative and the amount receivable within debtors of £46m represented more than the previous two years’ turnover of £44m. As a result, the FRRP enquired into the detailed application of the policy.

Required:

Refer to the website and discuss the significance of the revenue recognition criteria on the published results.