Reporting Issues Presented by John Selwood Highlights Triennial - - PowerPoint PPT Presentation

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

Permitted No cherry picking, except: Directors loans Gift aid exception

Mandatory

PC 1 Jan 2019

Financial instrument note: Para 11.41 deleted and replaced with FV assets and liabilities only! KMP compensation: Only disclose if there are KMP

• ther than the

director Inventories: the amount of inventories recognised as an expense during the period DELETED

Less disclosure for medium sized and large companies

Existing work arounds Repayable on demand? Repayable in 1Yr + 1day?

Financing transactions – limited scope exemption

Loan from director shareholder (+close family) SMALL company

• Avoid the capital

contribution and amortised cost adjustment etc

H Ltd

• Owns property

S Ltd

• Tenant

Properties in a group situation

In H Ltd

• Treat

property as PPE or investment

• Deemed cost

transitional exemption

Change of accounting policy to PPE

• Change of accounting policy
• Amend comparatives
• Disclose change, including changes

at date of transition

Historic cost

• As above, but with additional pitfalls!
• Deemed cost recognised at

transition date

• Alternative account rules apply –

revaluation reserve needed

Deemed cost

Gift aid payments from trading subsidiaries

Charity Trading Sub

FAQ For a June year end which is the first accounting period where the new way of accounting for gift aid should be applied?

LLP SORP revised

Final LLP SORP issued

New LLP SORP - application

Early adoption

Permitted No cherry picking..except loans

Mandatory

PC 1 Jan 2019

• Changes to Cash Flow

statement

• Loans to small LLPs
• Business combinations and

group accounts

• Definition of group

reconstruction – availability of merger accounting extended

Highlights

New LLP SORP

New LLP SORP – Cash Flow Statement

Reconciliation

• f net debt

Loans from members are not external financing Example on p30

• f SORP

How does this apply to am LLP? Equivalent LLP member

Financing transactions – limited scope exemption

Loan from ‘director’ and/or ‘shareholder’ (+close family) SMALL company (or LLP)

• Avoid the capital

contribution and amortised cost adjustment etc

New LLP SORP - separately recognised intangible assets – new para 108A

Goodwill Licence Customer list Domain name Goodwill Software Database

Acquisition accounting

MUST – separable and arising from contractual

• r other legal

rights MAY MUSTN’T

Full, filleted or abridged accounts

Small company accounts - PC 1 January 2016

Full

Prepared under FRS 102 1A Full P&L Full Balance Sheet

Abridged

Prepared under FRS 102 1A P&L – starts with GP No Arabic numeral presentation

Full filleted

No P&L Full Balance Sheet

Abridged filleted

No P&L No Arabic numeral presentation

Small company accounts - PC 1 January 2016

Full

Prepared under FRS 102 1A Full P&L Full Balance Sheet

Abridged

Prepared under FRS 102 1A P&L – starts with GP No Arabic numeral presentation

Full filleted

No P&L Full Balance Sheet

Abridged filleted

No P&L No Arabic numeral presentation

Abridged accounts

• Unanimous approval of

members needed – every year abridged accounts are prepared!

• Abridged P&Ls – probably

illegal! Mostly pointless!

• Abridged Balance Sheets –

simplified fixed asset note, often removes debtors and creditors note

Key features

Filleted accounts

• No Director’s report
• No P&L (or SOIRE)
• No SOCI?
• All notes to the

accounts remain – except P&L notes i.e. exceptional items

Key features

Micro entities: when to use FRS 105 or FRS 102

Micro company regime exemption Total assets

£316k Turnover £632k Employees 10

Small - FRS 102 1A

Full FRS 102 accounting policies with choices FV accounting ‘13’ disclosures Full P&L & BS

Micro - FRS 105

No accounting policy choices No fair values No Deferred tax 5 disclosures Minimal P&L and BS

Which framework

Small v Micro Credit rating!

Other factors to be considered

FRS 102 1A – disclosure and presentation FAQs

Q&A - 1

Presentation currency

Do small companies have to disclose the presentation currency?

Presentation currency

• Yes
• The standard is

convoluted and confusing here

• Is a £ sign enough?

FRS 102 1A

Q&A - 2

Stock note

Is a stock note needed in small company accounts?

Stock note

• Generally - No!
• But there are some

Arabic numeral requirements:

• Stocks
• Payments on account

FRS 102 1A

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,

movements in the year and closing balances

• The significant assumptions

underlying the valuation models and techniques used to determine the fair value

• Significant judgements?

FRS 102 1A

Q&A - 4

Employee numbers

Is a director an employee for disclosure purposes?

Employee numbers note

• There is no consensus
• Is there a contract for

services/employment contract?

• People might start to care

when near an important threshold i.e. 10 & 50!

FRS 102 1A

Foreign currency transactions

Provisions and contingencies

FRS 102 Section 21

The entity must have a present

• bligation 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 – all three have to be met

by way of a legal

• bligation

by way of a constructive

• bligation

Provisions for liabilities – obligations

• a) a reconciliation showing:
• (i) the carrying value at the beginning and end of the

period;

• (ii) additions to the provision during the period, including

any adjustments that have arisen due to changes in measuring the discounted amount;

• (iii) amounts charged against the provision during the

period; and

• (iv) unused amounts which have been reversed during

the period;

• b) a brief description of the nature of the obligation together

with the expected amount and timing of any resulting payments;

• c) an indication of the uncertainties about the amount or

timing of those outflows; and

• d) the value of any expected reimbursement – this should

also state the amount of any asset that has been recognised for the reimbursement.

For each class of provision, the financial statements should disclose:

Disclosure - provisions

• an estimate of the

contingent liability’s financial effect

• an indication of the

uncertainties relating to the amount or timing of any

• utflow and
• the possibility of any

reimbursement

For each class of contingent liability at the reporting date, a brief description of the nature of the contingent liability and, where practicable:

Disclosure – contingent liabilities

• the fact that, and reason

why, the information required by paragraph 21.14/21.15 has not been disclosed

For provisions and contingent liabilities, disclose:

Disclosure – prejudicial disclosures

Accounting policies, estimates and errors

Disclose material accounting policies

• the nature of the change in accounting

policy

• for the current period and the prior the

amount of the adjustment for each financial statement line item affected;

• the amount of the adjustment relating

to periods before those presented and

• if it is impracticable to determine the

amounts to be disclosed in the above provide an explanation.

Mandatory change due to a change in an FRS

Disclosure

• as before, plus
• the reasons why the

new accounting policy provides reliable and more relevant information

Voluntary changes to an accounting policy

Disclosure

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

Change to accounting estimates

Revenue recognition

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.

FRS 102 – Section 23 - Revenue

Revenue – Significant risks and rewards

• ‘when the entity retains an obligation for

unsatisfactory performance not covered by normal warranties;

• when the receipt of the revenue from a particular

sale is contingent on the buyer selling the goods;

• when the goods are shipped subject to installation

and the installation is a significant part of the contract that has not yet been completed; and

• when the buyer has the right to rescind the

purchase for a reason specified in the sales contract, or at the buyer’s sole discretion without any reason, and the entity is uncertain about the probability of return.’

Significant risks and rewards of

• wnership: