Experian plc

CR Monitor Issue: 
2012/0205
Period End: 
31 March 2011
Auditor: 
PricewaterhouseCoopers

Summary

Change
Changing to use CPI rather than RPI as inflation measure gives rise to gains in both income statement and other comprehensive income.
Change
Changes made to income statement whereby costs are now classified by nature rather than by function.
Change
Revised classification of net finance costs between income and expense items.
Divergence
Analysis of other comprehensive income by item removed from statement of changes in equity but no concentration of such disclosures in a note.
Change
An associate disposed of classified as discontinued operation.
Change
Disclosure of fair values of assets and liabilities arising from current year acquisitions follows minimum requirement under revised IFRS 3.

Analysis

Overview and evaluation of changes made in reporting practice since the last accounting period
Key Point

Report issued on 8 February 2012 did not identify any changes with significant impacts on the financial statements but covered the following practice issues:

Pensions

Experian states that the UK government changed to use the Consumer Prices Index (CPI) rather than the Retail Prices Index (RPI) as the inflation measure for determining the minimum pension increases applied to statutory index-linked features of retirement benefits. The company discloses that this results in a reduction in its pension obligations and that, although pension increases in respect of benefits accrued before April 1997 are discretionary, they have for the past eight years been based on the RPI. It adds that, as expectation for increases based on the RPI was deemed to exist, it accounts for the change as a change in the rules of the plan and records a past service credit of US$29 million in its income statement. This follows principles of UITF Abstract 48 “Accounting implications of the replacement of the retail prices index with the consumer prices index for retirement benefits” that, where the obligation is to pay benefits with increases based on RPI, the corresponding treatment of a reduction in pension obligations is a past service credit in the income statement and that a company’s public statement or past practice gives rise to a constructive obligation where it has created a valid expectation that it will pay certain employee benefits (paras 6&7). Experian adds that changing to use CPI for the revaluation of pensions in deferment is required by the rules of its principal scheme and accordingly a US$18 million reduction in liabilities is recorded through other comprehensive income.

Financial statements format

Experian changes the format of its income statement and now presents costs by nature rather than by function. The company states that this more appropriately reflects the nature of its cost base and developments in its cost management globally. IAS 1 “Presentation of financial statements” does not restrict the classification of costs but requires a presentation which provides information that is reliable and most relevant (para 99). Prior year figures are restated accordingly.

The company also amends the classification of net finance costs between income and expense items to more appropriately reflect the nature of its financing and related hedging arrangements. Consequently, the company now includes fair value gains and losses on borrowings attributable to currency risk, interest rate swaps accounting for as fair value hedges, non hedging derivatives and foreign exchange loss/gains on financing activities within its financing fair value remeasurements. Similarly, the company changes the disclosure of interest paid and interest received in the cash flow statement.

Experian early adopts an amendment to IAS 1 and no longer discloses each item of other comprehensive income in its statement of changes in equity. The amended IAS 1 gives a choice of presenting such disclosure either in the statement of changes in equity or in the notes (para 106A). The company tells us that the required disclosure by type of equity was disclosed in a combination of the statement of comprehensive income, statement of changes in total equity and a note. In our view, concentration of the disclosures required by IAS 1 in a note would be clearer.

Business disposals

Experian states that it sold its 20% interest in an associate under a buy-out option exercised by the buyer and classifies it as a discontinued operation. Following IFRS 5 “Non-current assets held for sale and discontinued operations”, the company separately discloses the results and the cash flows of the associate on the face of the income statement and cash flow statement respectively (para 33).

Segmental information

This year, following the sale of its associate as mentioned above, Experian restates the prior year figures for its operating segment – North America thereby excluding the results for the discontinued operation. A similar disclosure results in exclusion of results of FARES from the results of its Credit services business. This falls along the lines of IFRS 5 (para 41 (d)).

Business combinations

For current year acquisitions, Experian discloses only the fair values of assets acquired and liabilities assumed whereas previously, it also showed the carrying amounts. This follows the minimum requirement under revised IFRS 3 “Business combinations” (para B64(i)). The company recognises acquisition related costs amounting to US$8 million in the statement of income (para 53).

Related party transactions

This year, Experian incorporates the compensation to key management personnel segregated into different components as required by IAS 24 “Related party disclosures” (para 17) within its Related parties note, whereas such details were included in the Employee benefit costs and employee numbers note during the previous year.

Key Data

Overview and evaluation of changes made in reporting practice since the last accounting period
Year End: 
31/3/12
Revenue (millions): 
£4,239
Profit before tax (millions): 
£679
Listing Status: 
FTSE 100, S&P Europe 350
ICB Industry Classification: 
2791 Business Support Services