New UK GAAP Insights and solutions. Julia Penny and Paul Brace

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1 New UK GAAP Insights and solutions Julia Penny and Paul Brace

2 Introduction Julia Penny Content Manager (Audit and Accounting) Paul Brace -Head of Business Development Audit and Accounts Agenda New UK GAAP Insight Information solutions Technology solutions

3 New UK GAAP Insight - Contents What will new UK GAAP mean for you? Listed companies Small companies Micro companies Impact of the new Company Regulations implementing the EU directive Early adoption Impacts on audit What about LLPs?

4 What will new UK GAAP mean for you? 2015 regime Microregime within FRSSE onwards regime Available for LLPs Available for charities Micro Small Nonsmall FRS 105 No No Listed/AIM FRSSE 2015 FRS 102 IFRS (FRS 101 or FRS 102 option for parent/subs ) FRS 102 with section 1A for presentation Yes but not for early adoption of new limits Yes, but currently no SORP for FRS 102 1A FRS 102 IFRS (FRS 101 or FRS 102 option for parent/subs ) Yes Yes Yes No

5 Limits from 2016 (does not exceed) Micro-entity Small Company Turnover 632, m (was 6.5m) Balance sheet total 316,000 Average number of employees m (was 3.26m) A plc in the group no longer makes the whole group ineligible but a traded company does. The new small company limits can be adopted early, for periods beginning on or after 1 January 2015, but this is not available as an option for LLPs.

6 Audit exemption At present audit exemption is available to companies that qualify as small (with the exception of charities which have different rules) The small company limits are rising in 2016, but are available for early adoption in 2015 but only for accounting purposes This means the audit exemption limit will not rise until at least 1 January 2016 and there is a possibility that it will be further postponed

7 So what is new UK GAAP? New UK GAAP therefore consists of: The new draft FRS 105 for micro-entities The current (August 2014) version of FRS 102 The draft (expected to be July 2015) version of FRS 102 including section 1A containing reduced disclosure requirements for small entities There are also reduced disclosure frameworks for those applying either FRS 102 or FRS 101. FRS 101 the reduced disclosure framework (based on IFRS) FRS 102 section 1.12

8 FRS 102 MAJOR IMPACTS

9 Major Impacts in accounts Financial instruments, on balance sheet and often at fair value through profit and loss (FVTPL) Loans need to be recognised at amortised cost, so if interest rate less than market rate then notional interest must be recognised More fair values in business combinations to recognise separate intangibles Presumed maximum life of goodwill and intangibles, where life cannot be determined will be 10 years (rather than 20)

10 Major impacts in accounts Options to fair value biological assets, PPE (property, plant and equipment) and associates/jvs Requirement to fair value investment property with changes through profit and loss Options to capitalise interest/development costs as in current UK GAAP but originally proposed to be removed Transition exemptions and disclosure requirements

11 Tax impacts There are no specific rules relating just to the move to FRS 102 but there may be important impacts in the following areas: Trading profits Loan relationships Intangible assets When accounting policies are changed there are already rules to ensure that tax is still charged/relief given once and only once. These will apply to changes to FRS 102 as well.

12 Tax impact Overall the timing for payment to HMRC might be impacted due to the change to either IFRS or FRS 102 HMRC have issued guidance regarding tax impact on FRS 101 and FRS

13 Possible problem areas Financial instruments Any financial instruments, such as derivatives and certain equities, that need to be fair valued in the balance sheet, require a value as at the date of transition For entities with a December year-end this was as at 1 January 2014 (as long as there aren t short accounting periods) This means that fair values will have to established retrospectively.

14 Possible problem areas Bank covenants These might be based on audited accounts or annual financial statements, for example and so a change in GAAP could impact whether they are breached or not; If GAAP used is changed a covenant may either: a) be based on frozen GAAP or b) be breached, as the rules have changed

15 Intra-group or director loans Loans between group companies at zero or below market rates of interest are common Under FRS 102 they will need to be recognised at fair value with notional interest being created. The amortised cost method then calculates the interest to be charged each year in the profit and loss

16 Profit related pay/bonuses/earnouts Care will be needed where remuneration or payment for another company based on figures calculated under old UK GAAP If contract isn t clear it might mean that bonuses get paid on unrealised earnings or on figures not anticipated as being included Review all profit related contracts and amend as appropriate.

17 Possible problem areas Acquisitions that take place over the next couple of years There are exemptions from retrospectively restating business combinations occurring before the date of transition to FRS 102 This means, for example, that business combinations after 31/12/13 will need to be recognised and measured in accordance with FRS 102, but also potentially under current GAAP This might require valuation of separable intangibles, certain financial assets etc. at the acquisition date.

18 SMALL ENTITIES

19 FRS 102 section 1A for small entities The new regime for small entities is contained in an amended draft of FRS 102 Recognition and measurement exactly the same as for larger companies Section 1A of this contains the required disclosures for small entities, which are limited, but These accounts still need to give a true and fair view, so consideration will be needed of all FRS 102 or other relevant disclosures

20 Abbreviated vs abridged Abbreviated accounts are not available under the new regime Abridged accounts are available (not for charities) these can be prepared for members and are shortened versions of full accounts with only main headings and starting with gross profit but Shareholder approval needed each year Accounts still need to show a true and fair view, so might need to include turnover?

21 Filing requirements If company with members permission choose to prepare abridged accounts then these are used for filing, but No requirement for small entity to file the profit and loss account So only need balance sheet and notes and information regarding members consent for abridgement and whether audit report qualified or not, if accounts audited.

22 MICRO ENTITIES FRS 105

23 Overview FRS 105 is available for micro-entities (less than 632,000 turnover ) It has simpler requirements for recognition and measurement It has very limited disclosure requirements Micro-entity accounts are deemed to give a true and fair view

24 Key simplifications for micros No fair values/revaluations No capitalisation of borrowing or development costs No accounting for equity settled share-based payments No deferred tax Grants to be recognised using performance method Contracted/forward rate must be used for forex No related party disclosures

25 INFORMATION SOLUTIONS

26 Guidance and tools to help Requirement Learn about the basics of new UK GAAP and when it applies Understand in detail the requirements of FRS 102 Get to grips with the financial instruments requirements when I have no prior knowledge Deal with transition to FRS 102 in a step by step way including seeing an illustrated case study Model accounts to follow Solution Our free website Applying new UK GAAP Financial instruments guide The Transition Guide Model accounts online

27 Guidance and tools to help Requirement Understand the differences between FRS 102; old UK GAAP and IFRS. Understand how to prepare accounts under FRSSE 2015 Understand the presentation and disclosure requirements of FRS 102 and FRS 102 Section 1A Understand how to prepare charity accounts under the new SORPs Solution New UK GAAP: an at a glance comparison Preparing company accounts: FRSSE and Micro 2015 Preparing FRS 102 accounts Preparing Charity Accounts

28 Guidance and tools to help Requirement Understand the impact of legal and regulatory changes on charities, including tax, audit and accounting Understand pension schemes, tax and accounting and auditing under new UK GAAP Big 4 guidance on applying new UK GAAP Explain to clients what is required and what the impact of new UK GAAP is Solution Charity IAAG Pensions IAAG Deloitte GAAP manuals on FRS 102 and FRS 102 model accounts New Accounting Regime SME guide

29 TECHNOLOGY SOLUTIONS

30 Technology Solutions from Wolters Kluwer Requirement Financial Statement Production Financial Statement Review ixbrl tagging of Word and Excel Accounts Solution CCH Accounts Production Interactive Accounts Disclosure Checklist CCH ixbrl Review & Tag Audit and Assurance Services CCH Audit Automation

31 CCH Accounts Production Flexible easy to use system Forms part of our integrated solution and is also used as best of breed. Standard formats covering: Incorporated entities Micro entities Unincorporated entities Farms Charities Academies Pension funds Trusts Medical Practices

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33 New UK GAAP Master Formats Caters for full and reduced disclosure Options to select IFRS or Companies Act terminology Guidance when entering details to the statutory database Straightforward input of information for the first year transition disclosures

34 IFRS or Companies Act Terminology

35 Reduced Disclosure Framework

36 Guidance notes

37 Transition disclosures 2 easy steps. First enter restatement journals

38 Transition disclosures Then analyse the restatements and describe

39 Transition disclosures

40 Interactive Accounts Disclosure Checklist Quick and efficient check of compliance Checklists cover both existing and New UK GAAP: Private and Public Companies Small Companies FRSSE LLPs Groups Listed Companies Charities and Scottish charities Community interest companies.

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42 CCH ixbrl Review & Tag New ixbrl taxonomies for: IFRS FRS 101 FRS 102 Use of new ixbrl taxonomies mandatory from 1 April 2015 Automated tagging for accounts converted from Word or Excel

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44 CCH Audit Automation Paperless environment covering the entire audit or assurance engagement Methodology enhanced to cover FRS 102 Integrated disclosure checklists extended to cover FRS 102

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46 Wolters Kluwer Whether you need guidance or software to help you implement UK GAAP, Wolters Kluwer have the information and technology solutions you need to achieve a smooth transition to the new standards.