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Barclays still leaving over £2bn of bonuses out of accounts

Barclays is still leaving bonuses of more than £2.0bn out of its accounts, nearly three times the dividend for 2011 (£730m), according to analysis by PIRC.

PIRC research last year identified that at least £1.4bn of deferred bonuses payable were not carried as a liability or disclosed by Barclays in respect of 2010 and previous years. Barclays said that it was nevertheless complying with international accounting standards (IFRS) under which a liability to employees does not count as a liability.

That was contrary to the requirement of Section 411 of the Companies Act which requires amounts paid and payable to employees be disclosed, independently of whether IFRS or UK GAAP was used. It then became clear that this problem was common with other banks.

With today’s figures Barclays is now disclosing amounts payable in accordance with Section 411, even though it is not adjusting its profits or balance sheet for this. This reveals:

• The amount missing in 2010 was in fact £1.7bn, higher than PIRC’s estimate.
• For 2011 the missing sum is now £2.0bn.

PIRC notes that Barclays is calculating return on equity and other measures using IFRS as headline performance. The disclosures today therefore show the extent to which key performance measures are distorted by complying with IFRS.

Taking account of this, and £2.7bn own credit gain, another discredited IFRS quirk, Barclays true profit for 2011 is only £2,914m rather not the £5,879m IFRS number, nor the group’s own “adjusted” number of £5,590m.

Clearly, IFRS is not only distorting profits by not including bonuses payable, but it is distorting the profits on which these bonuses have been based in the first place.

Alan MacDougall, managing director of PIRC, said: “Bonuses at the banks are obviously grabbing the headlines, but shareholders should also be paying close attention to problems arising due to very defective financial reporting under current accounting standards.

"We believe the IFRS model is fundamentally flawed, and Barclays’ reporting provides a clear demonstration of why. Even now fundamental performance calculations are being carried out on the basis of misleading numbers, and bonuses are being paid out based on distorted profits, and then left out of the accounts. This is becoming a critical governance issue, and institutional shareholders must push for reform. The standard setters at the FRC must act now.”

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