Conal Kennedy writes:
In the past few years, accountants in practice have had to deal with a wave of change that has washed over them, including the new accounting frameworks in the UK and Republic of Ireland. In both jurisdictions, small and micro company regimes have been introduced which are generally welcome, but like any change in standards, can present challenges in just getting it right first time. In Practice Consulting we have given assistance and support to a large number of members and firms as they applied the new frameworks. Most of the firms that we have encountered have been successful in the transition process. However, we thought that you would be interested in a list of some of the more common issues that we have encountered, with a view to avoiding them, of course!
OK, so here’s what we have observed…
Directors’ remuneration disclosures. In ROI, including the directors’ remuneration information on the face of the profit and loss account does not mean it can be omitted from the abridged financial statements. Section 353 of the Companies (Accounting) Act (‘2017 Act’) specifically requires this information to be included in the abridged financial statements filed with the CRO.
Mixing and matching. Care should be taken when early adopting the ‘specified provision’ of the 2017 Act. For instance, we came across some ROI companies preparing statutory financial statements under the small companies regime but using the old abridging rules.
Departure from FRS 102 or Company Law. This is expected to be rare and only to arise in very unusual circumstances. We have seen instances where preparers departed from legislation or standards to account for relatively straightforward transactions and balances.
Non-disclosure of critical accounting judgements and estimates. FRS 102, when applied in full, requires these to be disclosed in the notes to the financial statements. Section 1A of FRS 102 encourages entities applying the small companies regime to disclose critical accounting judgements (but not estimates). We have seen cases where these disclosures were omitted altogether, or where standard boilerplate wording was used, not reflecting the circumstances of the preparing entity.
Connected entity or connected person loans. Under FRS 102, loans which are interest free or are low interest may be required to be classified as financing transactions and valued at the present value of future payments discounted at a market rate of interest if they are due after more than one year. This is a difficult area and some preparers have struggled to apply the accounting standard correctly. In some instances, a loan whose terms were undocumented was mistakenly treated as being due after more than one year. A loan whose terms are undocumented may be considered to be repayable on demand, notwithstanding the intentions of the parties to repay it over a longer period. The solution: if the loan is repayable on demand, then, unless there is an impairment issue, it should be carried at the original transaction price with no adjustment, and as an amount due in less than one year. In ROI, reference may also need to be made to the Evidential Provisions in Sections 236 and 237 of the Companies Act. See also the new concession applying to small entities for loans from persons who are within a director’s group of close family members (including the director), when that group contains at least one shareholder in the entity - for details, please see the Amendments to FRS 102 publication issued by FRC in December 2017 (this publication is also mentioned later in Technical Signpost).
We hope that this article will prove useful in identifying issues. Naturally, it is not a comprehensive list in part because we have concentrated on errors which are completely new and particular to the new frameworks. The article has been written in general terms, and should be viewed as a pointer towards issues that may have been overlooked and should not be relied upon.
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