Annual UK Accounting Update Identifying the right GAAP Accounting - PDF document

Annual UK Accounting Update

Identifying the right GAAP

Accounting standards FRS 100 01/01/2015 01/01/2016 IFRS FRS 101 FRS 102 FRS 105 FRS 102 FRS 102 FRS 102 Reduced Section 1A disclosure

Accounting standards EU FRS 101 FRS 102 FRS 102 FRS 102 FRS 105 adopted rd small IFRS entities Listed Group Must      Stand – alone Option  Option    Large or medium-sized unlisted Group Option  Option    Stand – alone Option Option     Qualifying entity In IFRS group Option Option Option Option   In non-IFRS group Option Option Option Option   Small group Option Option Option  Option  Small entity Option  Option  Option  Micro-entity Option  Option  Option Option

SI 2015/980 • Revise definition of small and medium companies • Changes accounting and filing requirements for small companies

Link between company law and accounting standards • FRS 102 permits a company to early adopt FRS 102 for small entities, provided that it also applies the revised company law requirements from the same date. • It also requires an entity to adopt FRS 102 for small entities if a company adopts the company law changes for a period beginning before 1 January 2016.

Understanding the revised company law framework

Categorisation of companies Micro Small • Small company • Small company regulations regulations Medium Large • Large and • Large and medium medium regulations regulations

The limits Turnover Balance sheet E’es Current Revised Current Revised Current / £m £m £m £m Revised Micro .632 .632 .316 .316 10 Small 6.5 10.2 3.26 5.1 50 Medium 25.9 36.0 12.9 18.0 250 Small group Gross 7.8 12.2 3.9 6.1 50 Net 6.5 10.2 3.26 5.1 50 Medium group Gross 31.1 43.2 15.5 21.6 250 Net 25.9 36.0 12.9 18.0 250

Revised definition of ineligible groups • Revised definition of an ineligible group only includes plc if it is traded •  subsidiaries may now qualify as small • If the plc is not traded and would meet the small group size criteria it is not required to prepare group accounts

Formats – see appendix 3 B Fixed Assets Arabic format may be combined or I Intangible Assets adapted II Tangible Assets 1 Land and buildings 2 Plant and machinery Alphabetic and Roman numerals 3 Fixtures, fittings and equipment appear in form and order 4 Payments on account and assets in course of prescribed by Act construction III Investments C Current assets I Stocks

Profit and loss account is all Arabic.. ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• Except for micros – all letters 1 Turnover 2 Cost of sales 3 Gross profit 4 Distribution costs 5 Administrative expenses 6 Other operating income Operating profit 7 Interest receivable 8 Interest payable Profit before taxation 9 Tax on profit or loss 10 Profit after tax

Profit and loss account - micro ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• A Turnover B Other income C Cost of raw materials and consumables D Staff costs E Depreciation and other amounts written off assets F Other charges Profit before taxation G Tax H Profit or loss

Building block approach Others – All 3 Small abridged – Alphabetic and Roman Micro – Alphabetic

Company law changes for small companies

Directors’ reports • Required but not strategic report

Accounts - Old rules CA 2006 Shareholders Full Filed Full Abbreviated Filleted Audited Audit Special Notes Report

New rules CA 2006 Full Abridged Shareholders Filleted Filleted Filed Full Abridged full abridged Audit Audit Audit report Notes Notes report report

Hurdles for abridged Consent of all New rules When consent obtained Statutory declaration Every year CA 2006 Full Abridged Shareholders Filleted Filleted Filed Full Abridged full abridged Audit Audit Audit report Notes Notes report report

EU Directive Minimum Maximum Disclosures Disclosures

Need for true and fair accounts (1) • A small entity may need to provide disclosures in addition to those set out in order to enable the financial statements to give a true and fair view

Need for true and fair accounts (2) • A small entity is encouraged but not required to include: • A STRGL (Statement of other comprehensive income) where there are gains or losses not recognised in the profit and loss account (1A.9(a)); • A Statement of changes in equity, or a Statement of income and retained earnings ((1A.9(b))

Encouraged disclosures (1) • A statement of compliance with this FRS adapted to refer to Section 1A; • A statement that it is a public-benefit entity as set out in PBE 3.3A; • The going-concern disclosures relating to going concern set out in paragraph 3.9.

Encouraged disclosures (2) • Dividends declared and paid or payable during the period (for example as set out in paragraph 6.5(b)); • On first-time adoption of this FRS an explanation of how the transaction has affected its financial position and financial performance as set out in paragraph 35.13 (1AD.1)

Three specific issues • There is no disclosure requirement for the date of approval of the financial statements. • There are no disclosure requirements in relation to the tax charge in the profit and loss accounts. • Abridged accounts start with gross profit.

Illustration 1 Adam Adam Ltd has traded for many years. The turnover, gross assets and employees figures for the years ended 31 December 2014, 2015 and 2016 are as follows: 2014 2015 2016 Turnover 8.0 m 8.2 m 8.5 m Gross assets 4.0 m 4.2 m 4.3 m Employees 35 38 40 Advise the directors of Adam on the options available for 2015 and 2016?

Illustration 2 Barbara Barbara Ltd has traded for some years. The turnover, gross assets and employee figures, which have been growing substantially over recent years and are expected to do in future, are as follows: 2013 2014 2015 2016 £6.0 m £7.2 m £8.0 m £8.5m Turnover £3.0 m £4.2 m £4.1 m £4.3 m Gross assets 35 38 40 40 Employees Advise the directors of Barbara Ltd on the options for 2015 and 2016.

Illustration 3 Colin group Colin Plc 100% 80% 75% Diana Eric Freda 60% What impact does the changes in eligibility have George on the Colin Group

Illustration 4.1 - Hannah • Which is the first year for which the following medium-sized companies have to prepare their first FRS 102 accounts. • Hannah’s year end is 31 July

31/7/16 31/7/15 Illustration 4.1 1/1/2015 31/7/14

Illustration 4.2 -Ian • Ian’s last accounts were for the 52 weeks ended 30 December 2014?

31/12/16 31/12/15 1/1/2015 Illustration 4.2 30/12/14

31/12/16 1/1/2016 Illustration 4.2 if small 30/12/15 31/12/14

Illustration 4.3 - Jeanette • Jeanette was incorporated on 28 December 2014 and started trading on 7 February. The first accounts are being prepared to 31 March 2016?

Illustration 4.3 First AP Started end trading Incorporated 31/03/16 31/12/14 31/12/15 If small could not adopt new Regs as 1/1/2015 period before 01/01/2015

Accounts presentation under new UK GAAP

Financial statements Current UK GAAP FRS 102 Profit and loss account Income statements Statement of total recognised Statement of other gains and losses comprehensive income Balance sheet Statement of financial position Cash flow statement Statement of cash flows Movement on reserves (note) Statement of changes in equity Notes Notes Statement of income and Retained Earnings

Notes Cash flow statement STRGL Profit and Balance account sheet loss Old GAAP

?????? New GAAP InSt SoIRE SoCI SoCI Statement of Income Statement Statement of comprehensive statement of income comprehensive income and income retained earnings P&L OCI SoCF SoCIE SoFP Statement Statement Statement of financial of cash of changes position flows in equity

New GAAP ?????? - Small – 1A InSt SoCI SoCI SoIRE Statement of Statement of Statement of Income comprehensive income and comprehensive statement   income retained income   earnings P&L OCI SoCIE SoCF SoFP Statement Notes Statement Statement of of changes of cash financial    in equity position flows 

But • T&F

New GAAP ?????? - Small – T&F InSt SoCI SoCI SoIRE Statement of Statement of Statement of Income comprehensive income and comprehensive statement ? income retained income  ? ? earnings P&L OCI SoCIE SoCF SoFP Statement Notes Statement Statement of of changes of cash financial   in equity position flows  ?