SPRING 2017 FOR Guy Loveday 1 WHAT IS COMING UP? TRIENNIAL REVIEW - PowerPoint PPT Presentation

ACCOUNTS AND AUDIT UPDATE SPRING 2017 FOR Guy Loveday 1

WHAT IS COMING UP? • TRIENNIAL REVIEW OF FRS 102 • REGIME REMINDER • SMALL COMPANY FILING OPTIONS • UNDER FRS 102 S1A - WHAT MIGHT BE REQUIRED FOR TRUTH AND FAIRNESS? • NEW LLP SORP • COTTON TRADERS FRS 102 ACCOUNTS • AUDIT ESSENTIALS 2016

TRIENNIAL REVIEW OF FRS 102 • COMMENTS BY: • 31 DECEMBER 2016 • PHASE 1 • INCREMENTAL IMPROVEMENTS AND CLARIFICATIONS • PHASE 2 • EXPECTED LOSS MODEL AND LEASES

TRIENNIAL REVIEW OF FRS 102 • PHASE 1 … • FRED BY 31 MARCH 2017 • EFFECTIVE 1 JANUARY 2019 • PHASE 2 … • FRED BY 30 SEPTEMBER 2017 • EFFECTIVE 1 JANUARY 2022

FRED 67 ISSUED … • MARCH 2017 • PROPOSALS TO: • SIMPLIFY DIRECTORS’ LOANS FOR SMALL COMPANIES ONLY • REINSTATE SSAP 19 EXEMPTION FOR GROUP INVESTMENT PROPERTIES

FRED 67 ISSUED … • COMMENTS BY .. 30 JUNE 2017 • FINALISATION IN DECEMBER 2017 • EFFECTIVE FROM 1 JANUARY 2019 • EARLY ADOPTION PERMITTED

WHICH REGIME? Year ended Micro Small Other 30/06/2016 FRSSE or FRSSE or FRS 102 FRS 105 FRS 102 S1A 30/09/2016 FRSSE or FRSSE or FRS 102 FRS 105 FRS 102 S1A 31/12/2016 FRS 105 FRS 102 S1A FRS 102 31/03/2017 FRS 105 FRS 102 S1A FRS 102

EXCLUSIONS … • FRS 105 CANNOT BE USED BY CHARITIES, ENTITIES INCLUDED IN CONSOLIDATED ACCOUNTS AND INVESTMENT COMPANIES… • BUT IT CAN BE USED BY CICs AND LLPS AND REPRESENTS UK GAAP FOR UNINCORPORATED BUSINESSES THAT MEET THE SIZE CRITERIA

EXCLUSIONS … • FRS 102 SECTION 1A CANNOT BE USED BY CHARITIES – BUT IT CAN BE USED BY CICs AND LLPS • FRS 102 REPRESENTS UK GAAP FOR UNINCORPORATED BUSINESSES THAT FAIL TO MEET THE SIZE CRITERA FOR MICRO ENTITIES

FILING OPTIONS UNDER THE NEW SMALL COMPANY REGIME • FILE WHAT YOU PREPARE! • FULL OR ABRIDGED ACCOUNTS • MAY OR MAY NOT BE SUBJECT TO AUDIT • FILING OPTION - MAY OR MAY NOT BE FILLETED

FILING OPTIONS UNDER THE NEW SMALL COMPANY REGIME • WHAT SHOULD BE FILED IF THE FILLETING OPTION IS FOLLOWED? • WHAT SHOULD BE FILED IF THE COMPANY IS SUJECT TO AUDIT AND THE FILLETING OPTION IS FOLLOWED?

FILING OPTIONS UNDER THE NEW SMALL COMPANY REGIME

• UNDER FRS 102 SECTION 1A …. • ….. WHAT MIGHT BE REQUIRED FOR TRUTH AND FAIRNESS?

WHAT WAS REQUIRED …? • UNDER FRSSE? • OFTEN – NOTHING! “ Where there is doubt whether applying provisions of the FRSSE would be sufficient to give a true and fair view, adequate explanation shall be given in the notes to the accounts of the transaction or arrangement concerned and the treatment adopted”

IN SOME CASES … • A GOING CONCERN JUSTIFICATION • INFORMATION ABOUT CONSIGNMENT STOCK EXCLUDED FROM THE BALANCE SHEET • SEPARATE DISCLOSURE OF A FACTORING LOAN

WHAT MIGHT BE REQUIRED …? • UNDER FRS 105? • NOTHING! • THE ACCOUNTS ARE EFFECTIVELY DEEMED TO BE TRUE AND FAIR

WHAT MIGHT BE REQUIRED …? • UNDER FRS 102 SECTION 1A? • PARA 1A.6: “ A small entity may need to provide disclosures in addition to those set out in this section in order to comply with the requirement of paragraph 1A.5”

FRS 102 PARA 1A.17 … • A small entity is not required to comply with the disclosure requirements of Section 3 … and Sections 8 to 35 of this FRS • However, because those disclosures are usually considered relevant to giving a true and fair view, a small entity is encouraged to consider and provide any of those disclosures that are relevant to material transactions, other events or conditions of the small entity …

FRS 102 PARA. 1A.20 “ … a small entity is encouraged to make the disclosures set out in Appendix D to this section … … which may nevertheless be necessary to give a true and fair view” 19

WHAT MIGHT BE REQUIRED? • SOME OF THE DISCLOSURES PREVIOUSLY REQUIRED BY FRSSE? • FRSSE PARA 2.5 ITEMS? • OTHER POSSIBLE ITEMS …

WHAT MIGHT BE REQUIRED? • OTHER POSSIBLE ITEMS … • SOTCI? • SOCIE? • APPENDIX D ENCOURAGEMENTS? • DISTRIBUTABLE PROFITS?

THE NEW LLP SORP • IMPACT ON LARGER LLPs • IMPACT ON SMALL LLPs

IMPACT ON SMALL LLPs 27 Section 1A Small Entities of FRS 102 sets out the information that must be presented and disclosed in the financial statements of small entities that qualify for and choose to apply the small entities regime. There are no recognition and measurement simplifications for small entities. Small LLPs will therefore have to comply with the recognition and measurement requirements of FRS 102 and this SORP.

IMPACT ON SMALL LLPs 27A Subject to paragraphs 27B and 27C, small LLPs qualifying for and choosing to apply the small entities regime are required to comply with the disclosure requirements of Section 1A of FRS 102 rather than the disclosure requirements of this SORP.

IMPACT ON SMALL LLPs 27B The accounts of small LLPs must, however, give a true and fair view. Judgement will therefore be needed when considering whether further disclosures over and above those required by Section 1A of FRS 102 will be needed in order to ensure that the accounts give a true and fair view.

IMPACT ON SMALL LLPs 27C This SORP requires small LLPs to make the disclosures about how loans and other debts due to members rank in relation to other unsecured creditors as required by paragraphs 63 and 64 of this SORP.

IMPACT ON SMALL LLPs 27D This SORP encourages small LLPs to include the reconciliation of movements in members’ other interests detailed in paragraph 59 of the SORP. (This is effectively a SOCIE)

CLARIFICATION • IF ALL PROFITS ARE AUTOMATICALLY DIVIDED … • ..THE LLP MAY NOT HAVE ANY EQUITY…. • …SO THERE IS NO STATEMENT OF CHANGES IN EQUITY!

OTHER MATTERS … • Paragraph BC66 states: “ CCAB are aware that there are some inconsistencies in how automatic divisions ’of profits are accounted for in practice Some minor clarifications have therefore been made to paragraph 48 and paragraph 3A of appendix 2 Although the wording has been clarified, no changes to existing requirements are intended”

COTTON TRADERS LIMITED

AUDIT ESSENTIALS 2016 • JUNE 2016 • ICAEW ISSUE: • AUDIT ESSENTIALS 2016 “ A GOOD LEVEL OF AUDIT QUALITY”

AUDIT QUALITY – POSITIVE SIGNS • FIRMS ARE MORE CAUTIOUS ABOUT USING SUBSTANTIVE ANALYTICAL REVIEW • IMPROVED RECORDS OF RELATED PARTIES

AUDIT QUALITY – KEY FINDINGS • THREE KEY AREAS WHERE FIRMS CAN IMPROVE AUDIT QUALITY …

1. QUALITY OF JUDGEMENTS “ Estimates, judgements and uncertainty are the most challenging aspects of any audit”

1. QUALITY OF JUDGEMENTS • CHALLENGE MANAGEMENT ASSUMPTIONS • CONSIDER AVAILABLE EVIDENCE

1. QUALITY OF JUDGEMENTS “ This is the area where auditors can really demonstrate their professional scepticism ” 36

2. TESTING REVENUE • THE AUDITOR MUST UNDERSTAND THE REVENUE BUSINESS CYCLE! 37

2. TESTING REVENUE • START WITH SALES ORDERS OR DESPATCH NOTES … • … NOT INVOICES! 38

3. TESTS FOR COMPLETENESS “ Completeness of transactions – or designing tests to identify information that is not in the accounts – is usually more difficult”

3. TESTS FOR COMPLETENESS • TECHNIQUES … • review of invoices after b/s date; • review of payments after b/s date; • review of legal correspondence; • making enquiries with audit client personnel outside the accounting function to explain or corroborate facts and observations noted during the audit work