ICB The Bookkeepers Summit London 2019 November Drafting

ICB The Bookkeepers Summit London – 2019 November Drafting Financial Statements Eszter Petrinovics MA FICB PM Dip. IDEAL Schools - Opti. Accounts

What do you gain? THE QUALIFICATION – DRAFTING FINANCIAL STATEMENTS – Level 4 certificate – Part of the Level 4 Diploma in Advanced Bookkeeping and Accounts OPPORTUNITY SELF-EMPLOYED – SMALL PRACTICE members – New skill – taking it to the full service level for companies – New type of client as target EMPLOYED - EMPLOYER members – Improve your career prospects – Increase your employees’ competence

What do you have to do? KNOWLEDGE & APPLICATION – Bookkeeping Accounting The precision work of a bookkeeper to aid the preparation of Financial Statements – New perspective required Able to understand, interpret and apply standards (FRS 105, FRS 102), recommended practices (CCAB LLP SORP) and the legislation (Companies Act 2006, Corporation Tax Act 2009 / 2010)

Entities - Standards

Micro vs Small Size Micro-entity Small company Small group Medium-sized company Large company Turnover Balance sheet Employees 632, 000 316, 000 10 10. 2 m 5. 1 m 50 10. 2 m net/ 12. 2 m gross 5. 1 m net/ 6. 1 m gross 50 36 m 18 m 250 36 m or more 18 m or more 250 or more

Micro vs Small – Restriction of size Small is the DEFAULT. The FRS 105 qualification’s absolute limit is the fact that the micro status is a subcategory of the small company regime – Restriction by audit A shareholder with minimum 10% of the shares asks for an audit to be performed or audit is required by the articles of association and memorandum of association. – Exclusion by type Ineligible entites e. g. public companies, insurance companies, banking and e-money companies or regulated entities.

Which standard to go with? FRS 105 - MICRO FRS 102 - SMALL • Simple business with limited growth expected (OMB) • Rapidly growing business to avoid any impact of the transition • Reporting is only for compliance, no bank finance is sought, no application for tenders • More complex shareholder structure • Preferred reduced disclosure as long as possible • IT IS NOT YOUR CHOICE! • Investment properties are preferred to be carried at fair value • Ability to change accounting policies

The syllabus 2019

Syllabus 2019 main areas • Underpinning Knowledge • Limited Company Financial Statements • An Introduction to Consolidation (Group Accounts) • The Statement of Cash Flows • Interpretation of Financial Statements

Underpinning Knowledge Learning Outcomes: • 1. 1 Explain the purpose of financial statements, the legal framework that govern these and the role of accounting standards • 1. 2 Explain the statutory returns that need to be made for an incorporated entity • 1. 3 Explain the objectives of financial statements and their use and users • 1. 4 Explain the objectives of Internal Management Accounting • 2. 2 Explain the elements of company finance (shares, reserves, loans)

Limited Company Financial Statements Learning Outcomes: • 2. 1 Prepare Financial Statements for a Limited Company and/or a Limited Liability Partnership to ensure they comply with the relevant Accounting Standards and Company Legislation FRS 105 micro FRS 102 1 A small LLP under FRS 102

Limited Company Financial Statements STRUCTURE • Legislation and scope • Recognition and measurement • Format and disclosure notes • Worked case study • Software accounts production

An Introduction to Consolidation (Group Accounts) Learning Outcomes: • 3. 1 Explain the general principles of consolidation and prepare a set of Group Accounts to include both a Subsidiary and an Associate under FRS 102 Section 9 Note: this is a voluntary disclosure under FRS 102 Section 1 (A) goodwill, intra group transactions, fair value adjustments

The Statement of Cash Flows Learning Outcomes: • 4. 1 Explain the purpose of the Statement of Cash Flows and prepare the Statement based on FRS 102 Section 7. Operating – Investing – Financing activities Interpretation of Financial Statements Learning Outcomes: • 5. 1 Analyse and interpret Limited Company Financial Statements using Performance Indicators and Ratio Analysis

Primary Statements

Primary statements Primary Statements Income Statement Required SMALL Encouraged Required SMALL MICRO --- Statement of Other Comprehensive Income Statement of Changes in Equity Statement of Financial Position Statement of Cash Flows -----

Disclosure Requirements

Disclosure notes by a micro entity (a) off-balance sheet arrangements (new): charges on assets, contingent liabilities, capital commitments not provided for, pension commitments and other financial commitments (b) number of employees (new) (c) advances, credit and guarantees granted to directors (d) financial commitments, guarantees and contingencies: charges on assets, contingent liabilities, capital commitments not provided for, pension commitments and other financial commitments Presumed true and fair view

Disclosure notes by a small entity GENERAL NOTES (Accounting policies, corrections of errors etc) BALANCE SHEET NOTES (debtors/creditors/fixed assets etc) PROFIT AND LOSS RELATED NOTES (turnover/taxation etc) OTHER NOTES (Explanation of transition etc) FRS 102 Section 1 A Small Entities – Appendix C: Disclosure requirements for small entities in the UK – Appendix D: Disclosure requirements for small entities in the Republic of Ireland (more extensive) – Appendix E: Additional disclosures encouraged (dividend info, firsttime adaption, uncertainties and doubts regarding going concern)

Changes in the standards

Amendments – Advanced aspect • Amendments to FRS 102: The Financial Reporting Standard applicable in the UK and Republic of Ireland; Triennial review 2017 Incremental improvements and clarifications – issued in December 2017 applicable from 1 January 2019 where early adoption is allowed. • FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland March 2018 applicable from 1 January 2019 where early adoption is allowed (This version consolidates all previous versions and amendments) APPLICABLE from 1 January 2019

Amendments – Advanced aspect • General change to Section 1 A: Inclusion of the Republic of Ireland – separate disclosure for separate jurisdiction. • Presenting the Statement of Cash Flows is not mandatory for small entities however once presented even voluntarily the net debt reconciliation now must be presented as well. (this is in a new format as to what we had in FRS 1 in the previous syllabus)

Triennial review (2017) and the new 2018 March FRS 102 • Undue cost or effort exemption *Prior to the triennial review in 2017, the standard allowed small entities to use the ‘undue effort and cost’ exemption, which allowed entities to excuse themselves from applying Section 16 of the Investment Property Rules. This means that they must measure investment properties at fair value (cannot carry them at cost unless the investment property is rented to another group entity) gains and losses will land in the P&L rather than in the reserves! Deferred taxation to be calculated *Investments in associates can be carried at either cost or fair value but if carried at fair value undue cost or effort exemption cannot be used to measure it at cost after all

Triennial review (2017) and the new 2018 March FRS 102 • Intangible assets aquired in business combinations Entities are required to recognise intangible assets separately from goodwill where the intangible asset meets the recognition criteria, is separable and arises from contractual or other legal rights. This means fewer intangible assets have to be recognised separately.

Triennial review (2017) and the new 2018 March FRS 102 • More clarity to basic financial instruments Section 11 Basic financial instruments defines the existence of basic financial instruments even if they do not meet the conditions in section 11. 9 Principle-based description + more detailed examples in 11. 9 A …. if it (an instrument) gives rise to cash flows on specified dates that constitute repayment of the principal advanced, together with reasonable compensation for the time value of money, credit risk and other basic lending risks and costs… it is considered a basic financial instrument.

Triennial review (2017) and the new 2018 March FRS 102 • Directors’ Loan Account – Loans FROM Directors/Shareholders/LLP members Until now such loan with below market rate of interest or at zero rate of interest had to be measured at present value as a financing transaction The new exemption allows small entities to measure the loans at transaction price if it is from a director, (or their group of close family members when that group contains at least one shareholder) DLA – structured loans discounted as per the amortised cost method

We are ready! New Level 4 DFS course • 419 pages of rich content (+app. 325 CTAX) • Full presentation of accounts production with Taxfiler. TM including LLPs • Practical approach

Thank you! Eszter