The group set aside pounds 2.8m in its 1990 accounts to cover the cost of restructuring the business, including closing some of its manufacturing activities. The cost was treated as an extraordinary item, which means it was deducted from post-tax profits and did not affect earnings per share.
The following year, however, it realised a pounds 513,000 profit on the sale of some of the assets. It took the profit, in effect an over-provision the previous year, into its 1991 accounts as an exceptional credit - before calculating taxable profits - where it benefited earnings per share.
Yesterday, the Financial Reporting Review Panel, the accounting watchdog, said that the group had restated its 1990 accounts following discussions with the panel. These now show pre-tax profits of pounds 9.1m, down from pounds 13.2m as previously stated, while earnings per share have tumbled from 19.6p to 12.3p. The company's net assets are not affected.
Peter Vos, Eurotherm's deputy finance director, said: 'We feel unlucky. We were not trying to fiddle the books - we were trying to obey the rules.'
He pointed out that in 1990 it was permissible to treat reorganisation costs as extraordinary charges. But the following year the Urgent Issues Task Force ruled that all restructuring costs should be treated as exceptional.
The group had incurred a further pounds 2.4m of reorganisation costs that year, so felt it was legitimate to net the previous year's over-provision against it.
The panel, however, points out that accounting standards require consistent treatment of similar items. The problem should not arise in future as a new standard requires everything to be taken above the line.Reuse content