A significant overhaul in how corporate accounts have to be prepared and delivered to HMRC (HM Revenue & Customs) is underway and many companies are simply not prepared for the change.
New standards that change the UK’s generally accepted accounting principles (GAAP) represent the biggest upheaval in business accountancy for many years. GAAP is an accepted set of principles, standards and procedures that companies follow when they compile their financial statements for external use but businesses – as well as bankers and lenders – need to understand the revised rules.
The new set of standards include FRS 102 for medium and large sized companies, FRS 102 Section 1A (which is FRS 102 with disclosure exemptions for small companies), and FRS 105 for qualifying micro-entities (organisations whose turnover is less than £623,000).
The new standards change how and when companies account for certain assets and liabilities – with potential implications on profitability and net assets. However, the extent of the impact will depend on a company’s activities, assets and liabilities. While some may find the new approach fairly straightforward, others will be required to make significant changes to how they report their financial performance and position.
Areas where the accounting treatment will change include investment properties, deferred tax, revaluations, employee benefits (including holiday pay), goodwill and long-term liabilities which bear no interest.
These new standards represent a substantial overhaul in how corporate accounts have to be prepared and it’s fair to say that the vast majority of businesses will not grasp fully the significance of the changes.
Most small companies will choose to adopt the micro-entity regulations (provided they meet the size conditions) to avoid the onerous reporting requirements of FRS 102. However, this is not necessarily in the best interests of all small companies – for example, the revaluation model cannot be used under FRS 105 so it’s unlikely that companies with revalued properties would want to reduce their net assets by restating the properties at cost.
At Howards we are fully up-to-date with the changes and are geared up for preparing our clients’ accounts in the way that is best for them. Any businesses who are in any doubt about what the new rules will mean to them should contact us immediately on 01785 243276.