On December 14, 2020, WPP plc (the Company), with the concurrence of Deloitte LLP, the
Companys independent registered public accounting firm responsible for auditing its financial statements, determined that the Companys previously issued financial statements for the years ended December 31, 2019, 2018 and 2017, and
for each of the interim half year periods ended June 30, 2020 and 2019 contain errors with respect to certain aspects of the application of IAS 32 Financial Instruments: Presentation and IAS 39 Financial Instruments: Recognition and
measurement, resulting, respectively, in the incorrect presentation of the Companys notional cash pooling arrangements on the balance sheet and the inappropriate deferral of foreign exchange movements in the Companys translation
reserve due to the inappropriate application of hedge accounting in respect of non-derivative financial instruments, and therefore should not be relied upon. The Company has determined that it is appropriate
to restate the previously issued financial statements included in the Companys Annual Report on Form 20-F for the year ended December 31, 2019 and report on Form
6-K for the six months ended June 30, 2020.
As described below, correcting the presentation of the
Companys notional cash pooling arrangements will have no impact on the Companys statements of income, comprehensive income, changes in equity or cash flows. In addition, correcting the presentation of the Companys notional cash
pooling arrangements will have no impact on net debt (a non-GAAP measure equal to the sum of bank overdraft, bonds and bank loans, less cash and short-term deposits), net assets or net current liabilities.
Correcting the inappropriate deferral of the Companys foreign exchange movements in the Companys translation reserve will have no impact on net assets, operating profit, total comprehensive income/(loss) for the year or the
Companys statement of cash flows, although such correction will affect profit/(loss) for the year from continuing operations and reported earnings per share.
Notional Cash Pooling Arrangements
The Company
operates several notional cash pools around the world with different banks. In the notional cash pooling arrangements, each subsidiary company within the cash pool has its own bank account, but each is part of a wider cash pooling agreement with the
bank where the bank has a legal right of offset. The notional cash pools have entities with positive cash positions and other entities with overdrafts, and the Company manages these pooling arrangements on a net basis. For balance sheet presentation
purposes, the Company has historically netted the cash and overdraft positions in each cash pool. This reduces the cash and overdraft position reflected on the Companys balance sheet, while resulting in the same net cash position being
reflected. This offset and the amount involved was previously disclosed in note 27 to the Companys financial statements for the fiscal year ended December 31, 2019. However, the Company has since determined that it does not satisfy the
conditions in IAS 32 Financial Instruments: Presentation that are necessary to present its cash and overdraft positions on a net basis in its balance sheets.
IAS 32 Financial Instruments: Presentation requires that a financial asset and a financial liability should be offset as a net amount in the statement
of financial position when, and only when, both of the following conditions are satisfied:
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a)
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the entity currently has a legally enforceable right to set off the recognised amounts of the asset and
liability; and
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b)
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the entity intends to settle on a net basis, or to realise the asset and settle the liability simultaneously.
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The Companys cash pooling agreements with each bank provide each bank with a legal right of offset. In March 2016, the IFRS
Interpretations Committee issued a final agenda decision on IAS 32, Offsetting and cash-pooling arrangements. This clarified that to the extent to which a Company did not expect to settle its subsidiaries period-end account balances on a net basis, it would not be appropriate to assert that it had the intention to settle the entire period-end balances on a net basis at the
reporting date. The Company did not settle its subsidiaries bank account balances on a net basis at the end of the financial reporting periods to be restated. As a result, the offsetting adjustments made on the balance sheet should not
have been made, and the cash and overdrafts should have been disclosed on a gross basis to comply with the IFRS interpretation.
The adjustments to
correct the notional cash pooling matters will be limited to balance sheet adjustments in both cash and short-term deposits and bank overdrafts, bonds and bank loans that result in an expected aggregate increase in both of £5.899 billion,
£6.833 billion, £7.240 billion and £6.214 billion in the Companys balance sheets as at June 30, 2020, December 31, 2019, June 30, 2019 and December 31, 2018, respectively.