How to Estimate Distributable Reserves

This note has been prepared in response to the notion that the recommendations on the group disclosure of distributable reserves in the government White Paper, ‘Restoring trust in audit and corporate governance’, are too complicated for large UK based public interest entities to implement. In this note we suggest that this argument is unsustainable. We suggest three methods by which the realised reserves of group entities might be estimated if they cannot be calculated precisely. It is our suggestion that the last of our proposals, which is a bottom-up calculation of available realise reserves undertaken on a subsidiary-by-subsidiary basis, with supporting disclosures made, should be the basis on which corporations report what they may legally distribute. This would supply the core stakeholders of a public interest entity, as identified by the International Financial Reporting Standards Foundation (2018), with that information required to appraise the likely income streams they might enjoy because of their share ownership.