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

Annual UK Accounting Update

Identifying the right GAAP

Accounting standards

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

Accounting standards

EU adopted IFRS FRS 101 FRS 102 FRS 102 rd FRS 102 small entities FRS 105 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 company

regulations

Small

• Small company

regulations

Medium

• Large and

medium regulations

Large

• Large and

medium regulations

The limits

Turnover Balance sheet E’es Current £m Revised £m Current £m Revised £m Current / 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 I Intangible Assets II Tangible Assets 1 Land and buildings 2 Plant and machinery 3 Fixtures, fittings and equipment 4 Payments on account and assets in course of construction III Investments C Current assets I Stocks

Alphabetic and Roman numerals appear in form and order prescribed by Act Arabic format may be combined or adapted

• Profit and loss account is all Arabic..

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

Except for micros – all letters

• 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

Audited Filed Shareholders

CA 2006 Full Full Audit Report Abbreviated Special Filleted Notes

New rules

Audit report Filed Shareholders

CA 2006 Full Full Audit report Filleted full Notes Abridged Abridged Audit report Filleted abridged Notes

New rules

Audit report Filed Shareholders

CA 2006 Full Full Audit report Filleted full Notes Abridged Abridged Audit report Filleted abridged Notes

Hurdles for abridged Consent of all When consent obtained Statutory declaration Every year

EU Directive

Minimum Disclosures Maximum Disclosures

Need for true and fair accounts (1)

• A small entity may need to provide

disclosures in addition to those set

• ut 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

• ut 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 Turnover £6.0 m £7.2 m £8.0 m £8.5m Gross assets £3.0 m £4.2 m £4.1 m £4.3 m Employees 35 38 40 40 Advise the directors of Barbara Ltd on the options for 2015 and 2016.

Illustration 3 Colin group

Colin Plc

100%

Diana

80%

George

60%

Eric

75%

Freda

What impact does the changes in eligibility have

• n 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

Illustration 4.1

31/7/14 31/7/15 31/7/16

1/1/2015

Illustration 4.2 -Ian

• Ian’s last accounts were for the 52

weeks ended 30 December 2014?

Illustration 4.2

30/12/14 31/12/15 31/12/16

1/1/2015

Illustration 4.2 if small

31/12/14 30/12/15 31/12/16

1/1/2016

Illustration 4.3 - Jeanette

• Jeanette was incorporated on 28

December 2014 and started trading

• n 7 February. The first accounts are

being prepared to 31 March 2016?

Illustration 4.3

31/12/14 31/12/15 31/03/16

1/1/2015

Started trading Incorporated First AP end If small could not adopt new Regs as 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 gains and losses Statement of other 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

Old GAAP

Profit and loss account Cash flow statement STRGL Balance sheet Notes

New GAAP

Statement of comprehensive income Statement

• f cash

flows Income statement Statement

• f financial

position OCI P&L Statement of comprehensive income SoCI SoFP SoCI InSt SoCF Statement

• f changes

in equity SoCIE Statement

• f income

and retained earnings SoIRE

??????

New GAAP

• Small – 1A

Statement of comprehensive income Statement

• f cash

flows Income statement Statement of financial position OCI P&L Statement of comprehensive income SoCI SoFP SoCI InSt SoCF Statement

• f changes

in equity SoCIE Statement of income and retained earnings SoIRE

??????

     

Notes

 

But

• T&F

New GAAP

• Small – T&F

Statement of comprehensive income Statement

• f cash

flows Income statement Statement of financial position OCI P&L Statement of comprehensive income SoCI SoFP SoCI InSt SoCF Statement

• f changes

in equity SoCIE Statement of income and retained earnings SoIRE

??????

  

Notes

 ? ? ? ?

Fillet

• Must deliver balance sheet
• May also deliver
• Profit and loss account
• Directors' report

New GAAP

• Small – Fillet

Statement of comprehensive income Statement

• f cash

flows Income statement Statement of financial position OCI P&L Statement of comprehensive income SoCI SoFP SoCI InSt SoCF Statement

• f changes

in equity SoCIE Statement of income and retained earnings SoIRE

??????

 

Notes

 ? ? ? ?  

How do you fillet?

• Regulations
• Omit P&L
• What do you start with
• What is P&L?
• SoCI
• InSt and SoCI
• SoIRE

Presentation aspects

• Investment property gains and

losses

• Listed investment gains and losses
• Cash flow statement – movement on

cash and cash equivalents

• SoCiE primary statement
• Treatment of errors

Reduction in notes

Illustration 5

Your client is a farmer and has the following employees: Whole year 2 During lambing – March 5 During harvest - June 11 What is the average number of employees?

Comments on illustration 5

10 months @ 2 20 March 5 June 11 Total 36 Average 36/12 3

Illustration 6

Full-time employees 20 Part-time employees 10 Self-employed agency workers 60 Students on zero hours contracts 180 Full time executive directors 3 Non-executive directors 2

FRS 102 Section 1A - Related parties

• No need to disclose controlling party

unless sub and group accounts

• Only required to disclose material

transactions with

• Owners holding a participating interest (>

20%)

• Entities in which company holds > 20%

interest

• Directors

Illustration 7

• Leonard Ltd is a training and conference
• company. The shareholders are Leonard, his

wife Michelle, daughter Norma and son Owen. Leonard owns 70% of the shares, and each of the others own 10%. Leonard and Pauline (no relative) are the directors. During the year the following transactions took place:

• The company made loans of £10,000 to Michelle

and Pauline. The loans are repayable on demand.

• Leonard Ltd guaranteed the overdraft of

another business controlled by Pauline.

Illustration 7

• The company paid fees to training businesses
• perated by Pauline and another company
• wned by Owen for training services provided.

The fees are on normal commercial terms.

• Day to day management is in the hands of

Rose, Pauline’s daughter who is paid £15,000;

• Leonard and Pauline earned £5,000 in directors’
• fees. Pauline’s director fees were paid to her

training business.

• Leonard was also paid a salary was £50,000.
• The company paid dividends of £100,000 in

total.

Illustration

• Leonard Ltd is a training and conference
• company. The shareholders are Leonard, his

wife Michelle, daughter Norma and son Owen. Leonard owns 70% of the shares, and each of the others own 10%. Leonard and Pauline (no relative) are the directors. During the year the following transactions took place:

• The company made loans of £10,000 to Michelle

and Pauline. The loans are repayable on demand.

• Leonard Ltd guaranteed the overdraft of

another business controlled by Pauline.

Not a director – no CA 06

• no 1A

Director – CA 06 Director – CA 06

Illustration

• The company paid fees to training businesses
• perated by Pauline and another company
• wned by Owen for training services provided.

The fees are on normal commercial terms.

• Day to day management is in the hands of

Rose, Pauline’s daughter who is paid £15,000;

• Leonard and Pauline earned £5,000 in directors’
• fees. Pauline’s director fees were paid to her

training business.

• Leonard was also paid a salary was £50,000.
• The company paid dividends of £100,000 in

total.

Not disclosable Not disclosable Not disclosable Disclosable Disclosable Not disclosable

Micro-company accounts under the new regime

Micro-entities

• May not qualify
• Charity
• LLP (but now can!)
• No directors’ report
• May not adopt if included in group

accounts

Micro-entity accounts

• May not use fair values
• Only need Alphabetic prefixed items
• Only 2 notes
• Advances to directors
• Guarantees and commitments not on

balance sheet

Illustration 8

• Simon Ltd has future operating lease

commitments of £10,000 and capital commitments of £30,000.

• It has also guaranteed the overdraft
• f £25,000 for a subsidiary company

and there is an unrecognised contingent liability of £40,000.

• What is required to be disclosed?

Illustration 9

• Thomas Ltd and Ulrika Ltd are investment property
• companies. Both would qualify as micro-companies

(based on the turnover and employee criteria) and currently follow FRSSE 2008.

• The market value of the investment properties

according to the last financial statements was in the region of £5 m.

• Thomas Ltd is financed entirely by equity, whereas

Ulrika has borrowings of £3.5 m, secured on the property.

• Advise the directors of Thomas and Ulrika Ltd as to

whether they should adopt FRS 105.

Transition to FRS 105

• Reversal of any fair value / revalued

asset

• Reversal of any deferred tax

provision

End and questions