Small Company Reporting Issues Presented by John Selwood
Highlights Triennial review reminder + LLP SORP Small and micro company issues Forex transactions Provisions Accounting policies and estimates Revenue recognitions
Key issues from the triennial review: reminder
FRS 102 – Triennial review
Application Early adoption Mandatory Permitted PC 1 Jan 2019 No cherry picking, except: Directors loans Gift aid exception
Less disclosure for medium sized and large companies Financial KMP Inventories: instrument note: compensation: the amount of Para 11.41 deleted Only disclose if inventories and replaced with there are KMP recognised as an other than the expense during the FV assets and director period DELETED liabilities only!
Financing transactions – limited scope exemption SMALL company Loan from director • Avoid the capital shareholder contribution and (+close family) amortised cost adjustment etc Repayable on demand? Existing work arounds Repayable in 1Yr + 1day?
Properties in a group situation H Ltd In H Ltd • Owns property • Treat property as PPE or investment • Deemed cost S Ltd transitional • Tenant exemption
Change of accounting policy to PPE • Change of accounting policy Historic • Amend comparatives • Disclose change, including changes cost at date of transition • As above, but with additional pitfalls! Deemed • Deemed cost recognised at transition date cost • Alternative account rules apply – revaluation reserve needed
Gift aid payments from trading subsidiaries FAQ Charity For a June year end which is the first accounting period where the new way of Trading accounting for gift aid should be Sub applied?
LLP SORP revised
Final LLP SORP issued
New LLP SORP - application Early adoption Mandatory Permitted No cherry PC 1 Jan 2019 picking..except loans
New LLP SORP • Changes to Cash Flow statement • Loans to small LLPs • Business combinations and Highlights group accounts • Definition of group reconstruction – availability of merger accounting extended
New LLP SORP – Cash Flow Statement Reconciliation of net debt Loans from members are not external financing Example on p30 of SORP
Financing transactions – limited scope exemption SMALL company (or LLP) Loan from ‘director’ and/or ‘shareholder’ • Avoid the capital contribution and amortised (+close family) cost adjustment etc How does Equivalent this apply to LLP member am LLP?
New LLP SORP - separately recognised intangible assets – new para 108A MUST – Acquisition accounting separable Licence and arising Customer from list contractual Goodwill or other legal Database rights Domain name MAY Software MUSTN’T Goodwill
Full, filleted or abridged accounts
Small company accounts - PC 1 January 2016 Full Abridged Prepared under FRS Prepared under FRS 102 1A 102 1A P&L – starts with GP Full P&L No Arabic numeral Full Balance Sheet presentation Full filleted Abridged filleted No P&L No P&L No Arabic numeral Full Balance Sheet presentation
Small company accounts - PC 1 January 2016 Full Abridged Prepared under FRS Prepared under FRS 102 1A 102 1A P&L – starts with GP Full P&L No Arabic numeral Full Balance Sheet presentation Full filleted Abridged filleted No P&L No P&L No Arabic numeral Full Balance Sheet presentation
Abridged accounts • Unanimous approval of members needed – every year abridged accounts are prepared! Key • Abridged P&Ls – probably illegal! Mostly pointless! features • Abridged Balance Sheets – simplified fixed asset note, often removes debtors and creditors note
Filleted accounts • No Director’s report • No P&L (or SOIRE) • No SOCI? Key • All notes to the features accounts remain – except P&L notes i.e. exceptional items
Micro entities: when to use FRS 105 or FRS 102
Micro company exemption Total assets regime £316k Turnover £632k Employees 10
Which framework Small - FRS Micro - FRS 102 1A 105 Full FRS 102 accounting No accounting policy policies with choices choices No fair values FV accounting No Deferred tax ‘13’ disclosures 5 disclosures Full P&L & BS Minimal P&L and BS
Other factors to be considered Small v Micro Credit rating!
FRS 102 1A – disclosure and presentation FAQs
Q&A - 1 Presentation currency Do small companies have to disclose the presentation currency?
Presentation currency • Yes FRS • The standard is 102 convoluted and confusing here 1A • Is a £ sign enough?
Q&A - 2 Stock note Is a stock note needed in small company accounts?
Stock note • Generally - No! FRS • But there are some Arabic numeral 102 requirements: • Stocks 1A • Payments on account
Q&A - 3 Investment properties Exactly what disclosures are needed in relation to investment properties in small company accounts?
Investment properties • Not much! • Opening balances, FRS movements in the year and closing balances 102 • The significant assumptions underlying the valuation 1A models and techniques used to determine the fair value • Significant judgements?
Q&A - 4 Employee numbers Is a director an employee for disclosure purposes?
Employee numbers note • There is no consensus FRS • Is there a contract for services/employment 102 contract? • People might start to care 1A when near an important threshold i.e. 10 & 50!
Foreign currency transactions
Provisions and contingencies FRS 102 Section 21
Provisions for liabilities – all three have to be met The entity must have a present obligation that has arisen because of past event It is more likely than not that the entity will have to transfer some economic benefit in order to settle the obligation The amount of the obligation can be measured with some degree of reliability
Provisions for liabilities – obligations by way of a by way of a legal constructive obligation obligation
Disclosure - provisions For each • a) a reconciliation showing: • (i) the carrying value at the beginning and end of the class of period; • (ii) additions to the provision during the period, including any adjustments that have arisen due to changes in provision, measuring the discounted amount; • (iii) amounts charged against the provision during the the period; and • (iv) unused amounts which have been reversed during the period; financial • b) a brief description of the nature of the obligation together with the expected amount and timing of any resulting statements payments; • c) an indication of the uncertainties about the amount or should timing of those outflows; and • d) the value of any expected reimbursement – this should also state the amount of any asset that has been disclose: recognised for the reimbursement.
Disclosure – contingent liabilities For each class of • an estimate of the contingent contingent liability’s liability at the financial effect reporting date, • an indication of the a brief uncertainties relating to the description of amount or timing of any the nature of outflow and the contingent • the possibility of any liability and, reimbursement where practicable:
Disclosure – prejudicial disclosures For • the fact that, and reason provisions why, the information and required by paragraph contingent 21.14/21.15 has not been liabilities, disclosed disclose:
Accounting policies, estimates and errors
Disclose material accounting policies
Disclosure • the nature of the change in accounting Mandatory policy • for the current period and the prior the change amount of the adjustment for each financial statement line item affected; due to a • the amount of the adjustment relating change in to periods before those presented and • if it is impracticable to determine the an FRS amounts to be disclosed in the above provide an explanation.
Disclosure • as before, plus Voluntary • the reasons why the changes to new accounting an policy provides accounting reliable and more policy relevant information
Change to accounting estimates Account prospectively provisions for bad debts the useful lives of fixed assets residual values of fixed assets provisions for inventory obsolescence and expected outcome of provisions
Revenue recognition
FRS 102 – Section 23 - Revenue Section 23 applies to revenue arising from: the sale of goods; the rendering of services; construction contracts where the entity is the contractor; and the use by others of interest-yielding interest, royalties or dividends.
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