ACCOUNTS AND AUDIT UPDATE AUTUMN 2017 FOR Guy Loveday 1
WHAT IS COMING UP? • FRC STATEMENT RE: FRS 102 • TRANSITIONAL EXEMPTIONS FOR SMALL ENTITIES ONLY • TRUTH AND FAIRNESS AND THE DISCLOSURE OF DIVIDENDS • NEW MICRO COMPANY DISCLOSURES • FRS 102 – FEEDBACK FROM ICAS
FRED 67 ISSUED … • MARCH 2017 • PROPOSALS TO: • SIMPLIFY DIRECTORS’ LOANS FOR SMALL COMPANIES ONLY • REINSTATE SSAP 19 EXEMPTION FOR GROUP INVESTMENT PROPERTIES
MAY 2017 - FRC AMEND FRS 102 • A small entity may measure a basic financial liability that is a loan from a director who is a natural person and a shareholder in the small entity (or a close member of the family of that person) initially at transaction price
MAY 2017 - FRC AMEND FRS 102 • This amendment is effective immediately with retrospective application available; it shall not be applied directly, or by analogy, to any other transaction, event or condition
PROBLEM … • ACCOUNTING FOR INTEREST FREE LOANS
EXAMPLE … • SHAREHOLDER LENDS COMPANY £300,000 INTEREST FREE 10 YEARS AGO – WHEN MARKET RATE WAS 12% PA • LOAN WILL – MOST LIKELY - BE REPAID IN 5 YEARS’ TIME • TRICKY PYA POTENTIALLY REQUIRED …
EXAMPLE … b/f 12% c/f 1 54,800 6,600 61,400 2 61,400 7,400 68,800 3 68,800 8,200 77,000 4 77,000 9,200 86,200 5 86,200 10,400 96,600 6 96,600 11,600 108,200 7 108,200 13,000 121,200 8 121,200 14,500 135,700 9 135,700 16,300 152,000 10 152,000 18,200 170,200 11 170,200 20,500 190,700 12 190,700 22,800 213,500 13 213,500 25,700 239,200 14 239,200 28,700 267,900 15 267,900 32,100 300,000
TRANSITIONAL EXEMPTION
SIMPLER ADJUSTMENT … • b/f 5% c/f • 2016 235,000 11,700 246,700 • 2017 246,700 12,300 259,000 • 2018 259,000 13,000 272,000 • 2019 272,000 13,600 285,600 • 2020 285,600 14,400 300,000 • 65,000
TRUTH & FAIRNESS AND THE DISCLOSURE OF DIVIDENDS • QUESTION 1 • A company makes a profit of £80,000 and pays a dividend of £50,000 • Must information concerning the payment of the dividend be included in the statutory accounts in order for them to show a true and fair view?
TRUTH & FAIRNESS AND THE DISCLOSURE OF DIVIDENDS • QUESTION 2 • If a small company makes a profit of £80,000 and pays a dividend of £50,000 and accepts that information concerning the payment of the dividend must be included in the statutory accounts in order for them to show a true and fair view – then … • … will this information necessarily be disclosed in the accounts for filing purposes?
TRUTH & FAIRNESS AND THE DISCLOSURE OF DIVIDENDS • QUESTION 3 • If a small company makes a profit of £80,000, makes a purchase of its own shares out of available profits, revalues its freehold property and pays a dividend of £50,000 and accepts that information concerning the payment of the dividend must be included in the statutory accounts in order for them to show a true and fair view … • … then will this information necessarily be disclosed in the accounts for filing purposes?
ICAEW FAQ GUIDANCE
JOHNSON BAKER AND CO LTD • P&L ACCOUNT HAS BEEN FILLETED OUT BEFORE FILING • NO DIVIDEND NOTE • PROFIT FOR THE YEAR CAN BE ESTABLISHED!
JOHNSON BAKER AND CO LTD
JOHNSON BAKER AND CO LTD
JOHNSON BAKER AND CO LTD
FRS 102 PARAGRAPH 1AC.35 • Particulars must be given of material transactions the small entity has entered into that have not been concluded under normal market conditions with: (a) owners holding a participating interest in the small entity; (b) companies in which the small entity itself has a participating interest; and (c) the small entity’s directors [or members of its governing body].
FRS 102 PARAGRAPH 1AC.35 • Although disclosure is only required of material transactions with the specified related parties that have not been concluded under normal market conditions, small entities disclosing all transactions with such related parties would still be compliant with company law • Transactions with directors, or members of an entity’s governing body, include directors’ remuneration and dividends paid to directors.
NEW MICRO COMPANY DISCLOSURES … • EFFECTIVE 1 JANUARY 2019 • EARLY ADOPTION PERMITTED • SOME NEW DISCLOSURES FROM SI 2015/980 …
NEW MICRO COMPANY DISCLOSURES … • REGISTERED OFFICE INFORMATION • OFF BALANCE SHEET ARRANGEMENTS • AVERAGE NUMBER OF EMPLOYEES
ICAS GIVE FRS 102 FEEDBACK “ If there is one key message in this report, it is the importance of staying on track with FRS 102 and ensuring that sufficient training, planning, and resources are devoted to this area”
ICAS ANTICIPATE … • AUDIT QUALITY STANDARDS MAY DIP TEMPORARILY AS FIRMS GET TO GRIPS WITH THE NEW DISCLOSURE & MEASUREMENT REQUIREMENTS
ICAS BELIEVE .. • FIRMS ARE HOLDING BACK AS LONG AS POSSIBLE BEFORE COMPLETING AUDITS - THIS COULD LEAD TO FIRMS FACING SIGNIFICANT WORKLOAD PRESSURES
OF 20 FRS 102 FILES REVIEWED: • HALF HAD DISCLOSURE OMISSIONS • JUST UNDER HALF HAD AUDIT FIELDWORK DOCUMENTATION ISSUES • AUDIT PLANNING ISSUES WERE IDENTIFIED AT MOST FIRMS
ON THE CARPET! • C OLD FILE REVIEWS • A CCOUNTS SOFTWARE • R ESOURCES • P LANNING • E THICS • T RAINING
5 MOST COMMON ISSUES … 1. HOLIDAY PAY ACCRUALS 2. DEFERRED TAX ON REVALUATIONS 3. REASSESSMENT OF DEPRECIABLE AMOUNT 4. ONE-OFF REVALUATION AS DEEMED COST 5. FINANCING TRANSACTIONS
DISCLOSURE ISSUES … • TRANSITION • REVENUE POLICY • PPE POLICY • CURRENT TAX POLICY • FINANCIAL INSTRUMENTS POLICY
DISCLOSURE ISSUES … • OPERATING LEASES • KEY MANAGEMENT PERSONNEL • REGISTERED OFFICE • PRINCIPAL ACTIVITIES
POOR SOFTWARE? • USE A DETAILED FRS 102 CHECKLIST • USE MODEL FRS 102 FINANCIAL STATEMENTS
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