YEAR END 2011 ACCOUNTING PROCEDURES 1 NOVEMBER 2011 TONY HOUISON | SENIOR ACCOUNTANT REPORTING FINANCIAL CONTROL AND TREASURY
YEAR END ACCOUNTING PROCEDURES OVERVIEW MAIN COMPONENTS › This presentation has been developed to provide guidance in relation to the fundamental elements of the year end accounting process and requirements. It includes and explains: - Underlying accounting theory & requirements i.e. why we do, what we do - Practical examples on how to apply the requirements › The presentation deals with the following topics: - Creditors, accruals and commitments - Balance Sheet Reconciliations - Prepayments / prepaid income - Revenue recognition - Dealing with the auditors 2
YEAR END ACCOUNTING PROCEDURES TIMETABLE FOR THE YEAR END 2011 › The timetable can be downloaded from: sydney.edu.au/finance/accountants/year_end.shtml 3
OVERVIEW – RECORDING CREDITORS THE BIG PICTURE › Broadly, for year end purposes, where the university has a contractual obligation to pay a third party, the obligation to pay can be recorded: - In the books as a CREDITOR or ACCRUAL or - As an off-balance sheet COMMITMENT › The items recorded as creditors or accruals affect the operating result and balance sheet. They end up by being recorded as trade and other payables in the balance sheet. › The items recorded as commitments are notional items which are presented in the commitments note to the accounts with no affect on the operating result or balance sheet. 4
OVERVIEW OF RECORDING CREDITORS & ACCRUALS CREDITORS CAN BE RECORDED IN THREE WAYS AT YEAR END › Firstly, as invoices received relating to the current year’s activities that meet “creditors ledger cut-off” and are recorded in the creditors ledger & class 1003 creditors control. › Secondly, as invoices relating to the current year that are received after the creditors cut-off and are recorded as accruals in class 1000 accrued expenditure. › Thirdly, purchase order / other documentary support recorded based upon known obligations that can be reliably measured or estimated without reference to invoice(s) are recorded as accruals in class 1000 accrued expenditure. 5
CREDITORS – GST TREATMENT GST RULES › Where creditors or accrual entries are based upon tax invoices that have been received by the University. - The University is entitled to record the liability with relevant GST paid › Where however, the accrual is based upon an estimate and no tax invoice(s) are available, the accrual should be recorded as excluding GST. The overall rule is that GST claims should only be made when you have a tax invoice. › If we create accruals that include GST and we don’t have a tax invoice we are “breaking the law” because we are getting a refund via the BAS for amounts that are not properly supported. 6
CREDITORS INVOICE CUT-OFF PROCEDURES WHAT TO DO WITH INVOICES RECEIVED IN DECEMBER 2011 › Forward invoices received up to 7 December to Procure to Pay (P2P). - These invoices will be input to the creditors system in December › Invoices received after 7 December are to be processed as follows: - Stamp with an accrual stamp - Photocopy original invoice - Send original stamped invoice to P2P - P2P will input these invoices as January invoices to the creditors system - Prepare accrual template and send copy of invoice to FCT - NEVER send the original invoice to FCT - The accrual template and copy invoices will support the December accrual for these invoices - FCT will input the accrual entry to the general ledger 7
CREDITORS INVOICE CUT-OFF PROCEDURES CREDITORS AND PREPAYMENT – LIMITS › To enable the timely and accurate preparation of accruals and prepayments the following limits have been imposed: - Only accrue invoices that are equal to or greater $1000 - Only prepay items that are equal to greater than $50,000 8
CREDITORS INVOICE CUT-OFF PROCEDURES HOUSE-KEEPING RULES FOR THE ACCRUAL TEMPLATE › The accrual template covers: - Invoices received after cut-off date - Accruals based on previous months invoices e.g. electricity bill or rate notice - In these cases specify on the previous month’s invoice how you calculated the December accrual. This is required for audit. It may be best to refer to the previous years bill - Accrual based on purchase order (PO) where goods received or services performed - In these cases attach the PO, together with other supporting documentation such as email confirmation, goods received note (GRN) that proves the goods have been received and or the service performed - Cross referencing the accrual template to the supporting documentation - Each piece of supporting documentation is to be numbered 1 to 999 and that number must be recorded on the accrual template. This is done for audit purposes and to make review as easy as possible. 9
CREDITORS INVOICE CUT-OFF PROCEDURES HOUSE-KEEPING RULES FOR THE ACCRUAL TEMPLATE › Two versions of the accrual template should be forwarded to FCT via email to lubos.spatina@sydney.edu.au - First version is an excel spreadsheet [without any supporting docs] - Second version is a PDF copy that has been signed by the originator and their supervisor and includes the supporting documents › The accrual template and supporting documentation must be forwarded to FCT by cob 16/12/11. 10
CREDITORS INVOICE CUT-OFF PROCEDURES THE ACCRUAL TEMPLATE – SOME PRACTICAL EXAMPLES › The following items are practical examples of how to prepare the accrual template and supporting documentation. › Example 1: Freehills invoice - Invoice is in respect of the renewal of a patent. Its cross ref number is (1) - Invoice is dated 16/12/11 it is received and dated after cut-off - The invoice has two components: - Charge by Freehills for their services. This charge is subject to GST - Charge which is a reimbursement of costs incurred by overseas associates which is GST free - All charges should be coded to 6714 licence fees, however, due to the differing GST treatment the components should be separated. 11
TEMPLATE EXAMPLE (1) FREEHILLS INVOICE 12
CREDITORS INVOICE CUT-OFF PROCEDURES THE ACCRUAL TEMPLATE – SOME PRACTICAL EXAMPLES › Example 2: Accruals based on previous period charges - In this case the base data is an electricity bill covering the period 15/5 to 11/8/2011 i.e. 89 days - The accrual required is for the period 12/8/11 to 31/12/11 i.e. 143 days › Calculation of charges to be accrued: Base charge x # of days to 31/12/11 = 2336.25 x 143 = 3573.49 # of days base invoice 89 The GST free accrual is coded to class 5402 electricity. 13
TEMPLATE EXAMPLE (2) INTEGRAL ENERGY INVOICE 14
CREDITORS INVOICE CUT-OFF PROCEDURES THE ACCRUAL TEMPLATE – SOME PRACTICAL EXAMPLES › Example 3: Accrual based on purchase order - In cases where you don’t have an invoice and you know the goods have been received › The GST free accrual is recorded in account 6714 licences. 15
TEMPLATE EXAMPLE (3) CISCO SYSTEMS PURCHASE ORDER 16
CREDITORS INVOICE CUT-OFF PROCEDURES 17
COMMITMENTS THE BASIC REQUIREMENTS › Definition: - An undertaking to commit / pay substantial expenditure at a future date(s) - A legal obligation to undertake an activity at a future date - These pledges are deemed liabilities, that must be recorded in the University’s statutory accounts as notes to the accounts › What’s the difference to booked creditors and accruals? - The actual legal obligation arises at a future date - The supplier hasn’t provided the goods or service at the reporting date - Commitments are “notional” entries that do not effect the University’s results - Commitments are included in the accounts as a note 18
COMMITMENTS THE BASIC REQUIREMENTS › Why do we have to record commitments? - AASB 101 presentation of financial statements AUS 138.6 “the entity shall disclose the nature & extent of each capital and other commitment at the reporting date” - The disclosure shall be: - Next 12 months - 12 months to 5 years - Over 5 years - AASB 117 leases - AASB 116 property plant and equipment for capital commitments - AASB 101 & AASB 124 related parties for remuneration › What value is the notional liability recorded? - The GST inclusive value 19
COMMITMENTS HOW TO REVIEW THE COMMITMENTS WITHIN YOUR FACULTY › Review purchase orders to determine eligibility for recording as a commitment. › It may be necessary to liaise with finance and/or academic personnel to ascertain whether the commitment is required › Run SUPOC255 outstanding orders by department from PeopleSoft or run SUGLQ130 outstanding order details from Hyperion › Having ascertained what POs are not required, or if there are amendments / variations required, contact Alex Papangelis via email alex.papangelis@sydney.edu.au › The work performed by the faculties – sets up the commitment listing that is prepared by FCT and P2P 20
CREDITORS QUIZ 1 HOW DO I TREAT THIS ITEM? › Receive an invoice on 5 December from ABC Lawyers for work done in relation to my research project. The work was done in November 2011 › The invoice is approved and sent to P2P on 6 December › The creditors cut-off date is 7 December › Q: What would happen if the invoice wasn’t approved on 6 December? 21
CREDITORS QUIZ 2 HOW DO I TREAT THIS ITEM? › Receive an invoice on 16 December from ABC Lawyers for work done in relation to my research project. The work was done in November 2011 › The creditors cut-off date is the 7 December 22
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