Rolls-Royce has rejected criticism of its accounting methods. The rebuttals come after UBS Warburg downgraded the aircraft engine manufacturer from a 'hold' to a 'sell' recommendation, claiming the company uses exotic accounting methods.
But Rolls-Royce says it has no accounting secrets and its practices are fair and transparent.
UBS Warburg's criticism centred on Rolls-Royce's treatment of the contribution from revenue and risk sharing partners (RRSP).
This is where the group is paid a sum of money up front to fund new developments, in return for a share of future revenue.
UBS Warburg analyst Colin Crook argues that, when someone lends you money, you have a liability, not a profit.
But Rolls-Royce director of financial communications Peter Barnes-Wallace rejects these claims.
He adds: "RRSP receipts are not loans, as any revenue they generate for investors is directly linked to the success of individual engine programmes."
Mr Barnes-Wallace also highlights that development costs are written off, not capitalised.
Rolls-Royce has also rejected UBS Warburg's claim that its treatment of receipts is different from its European peers.
