FirstGroup, one of Britain’s biggest transport companies, has been accused of overstating its annual profits by millions of pounds by using unusual and “highly aggressive” accounting practices.

The company is reporting regular business expenses, including train refurbishment and legal and professional fees related to its bids for train franchises, as exceptional or “nonrecurring” items.

No other British rail company follows the same practice, which has aroused the interest of MPs on the Public Accounts Committee.

“It’s nonsense – these are not exceptional items at all, but everyday business costs,” Chris Cheek of TAS Partnership, a specialist public transport consultancy, said.

This year, the practice used by FirstGroup led to the exclusion of £19.3 million of “nonrecurring bid costs” and a further £22.3 million of other “nonrecurring items” – including rail refurbishment – from its operating costs.

FirstGroup describes these as “rail transition costs” related to the start of the First Capital Connect and First Great Western franchises. It says that they included one-off “refurbishment, redundancy and other mobilisation costs”. Including these costs as regular business expenses, in common with the rest of the industry, would effectively lower FirstGroup’s stated £259.2 million operating profits by 16 per cent to £217.6 million. The company also included £28.5 million of “nonrecurring bid costs” the previous year. Stripping out this figure would cut FirstGroup’s reported 2006 operating profits by 12 per cent from £229.7 million to £201.2 million.

Nick Hood, a partner at Begbies Traynor, the accountant, said that “while, clearly, no laws have been broken . . . this is highly aggressive accounting”.

Full details of the accounting technique are listed by Deloitte & Touche, FirstGroup’s auditor, in the annual report, published last week. There is no suggestion of any wrongdoing.

John Pugh, a member of the Public Accounts Committee, said that the practice “brought no credit on them or the industry”. He called for rail companies to adopt industry-wide reporting standards.

Mr Cheek said that TAS ignores FirstGroup’s nonrecurring items in a regular report that it publishes on UK rail industry finances. He said that other transport companies use different, but similarly aggressive accounting policies, particularly when reporting subsidies.

FirstGroup said in a statement that its results were reported in line with international accounting standards, which “represent appropriate and completely transparent disclosure”.

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