The purpose of our work is to describe changes to a company's reporting practices and to evaluate those changes in the light of relevant background. This includes accounting standards and regulatory requirements and the company's own circumstances such as operating & financial markets or mergers & acquisitions. We are not a compliance monitor but if we observe compliance failure we report on that also. 

When describing a change we set out the previous practice as well as describing the current practice. We always try to quantify the impact of a particular change, which might reflect on previous, current or future financial statements. Where the impact is not disclosed, or not measurable, we form a view of its potential significance to either (i) those financial statements and/or (ii) market price.

We consider whether a particular change in reporting practice or a compliance failure merits production of an Alert. If so, we describe succinctly the relevant points of the accounting issue and, where possible, quantify the impact. We consider also the importance of the accounting issue for investors and whether it should have a red, yellow or green flag in accordance with the following:

• Red flag: warning that attention is required: (i) there is a significant compliance failure, or there are multiple compliance failures, or the accounting treatment differs from a company's peers, or there is a lack of adequate disclosure, or in some way we do not agree with the company's treatment or presentation; AND (ii) the impact is sufficiently large that investors should be alerted.
  




• Yellow flag: warning that caution should be exercised: (i) the accounting treatment & disclosure is not abnormal, but the impact is sufficiently large that investors should be alerted to it; OR (ii) there is a compliance failure, or the accounting treatment differs from a company's peers, or there is a lack of adequate disclosure, or in some way we do not agree with the company's treatment or presentation, but which is not significant enough to be a red flag.
  




• Green flag: indication that no issues have been identified; but there has been a change in reporting practice which has a non-large impact and is likely to be of interest to the technical accounting community.
  

Where a red flag is assigned, or a criticism is being made, we engage with the company for clarification. With any such engagement, we request a response within 3 working days. In the absence of clarification within that time, we publish our Comment on www.companyreporting.com although we are quite happy to consider amending content in the light of any subsequent comments a company may wish to submit.