by John McCarthy Consulting Ltd. | Mar 16, 2016 | News
Thirty important issues arising from transition to FRS 102 (new Irish GAAP).
For further training, support and information on the changes, please visit www.jmcc.ie,
call 00 353 86 839 8360 or email john@jmcc.ie
We hope your FRS 102 preparation plans are going well. In order to assist our readers with FRS 102 we have developed a two-part Checklist. Part 1 appears now and Part 2 will be published next week.
Don’t miss our next public course on FRS 102 – great value at €199 for all day course including all materials, tea/coffee and lunch. Here’s a what a recent delegate had to say : ‘I would recommend this course to colleagues as John presents an extremely important topic in an understandable light-hearted fashion with humour.’
For booking details via Eventbrite click here.
Question
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Done?
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Comments
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A.
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Preparing the firm
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1.
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Has the firm developed a training plan for all individuals on the changes to Irish GAAP?
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2.
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Does the training plan include changes to Charities, and Pension Schemes templates and does the plan envisage a strategy for the use of the FRSSE 2015?
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3.
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Does the training plan also include training on accounting and taxation issues for tax staff?
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4.
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Does the training plan include proper use of the firm’s accounts and tax software?
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5.
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Is the implementation and effectiveness of the training plan under constant review?
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6.
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Has the firm confirmed when its software and reference material will be FRS 102 compliant?
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7.
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Has the firm considered the work flow pressures of transitioning client businesses of all types for periods commencing 1/1/15?
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B.
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Reviewing the client base
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8.
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Do any clients have external investors, long term loans or parent companies that will need to be contacted about the move to FRS 102?
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9.
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Where clients have loan agreements, have these been reviewed to determine whether FRS 102 might cause a breach of loan covenants or other issues that should be communicated as soon as possible to the clients’ bankers? Are non-bank loan agreements in writing?
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10.
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Has the firm discussed with clients what extra fees are expected to be charged in the year of transition to FRS 102, and on an ongoing basis?
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11.
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Have the accounting policies applied by each client been reviewed to identify any need to obtain fair value measures, and has this been discussed with the clients concerned?
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12.
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Is a plan in place to communicate to charities (and other specialist entities like pension schemes) the changes that are relevant to them?
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C.
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Accounting issues (not a comprehensive list but an indication of key areas)
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13.
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Have clients’ financial arrangements been reviewed to ensure no “other” financial instruments exist (which would need to be valued at fair value) under Section 12?
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14.
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Do any clients have long term loans at an interest rate below the entity’s market rate of interest (If so this would trigger the need to adjust the loan using the present value at an effective market rate)?
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15.
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For investment properties: has the client been warned that movements will now pass through the profit and loss account and attract a deferred tax liability?
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16.
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For investment properties let to other group companies: has the client been warned they must be held at a valuation in the individual accounts (and so valuations will be needed at the transitional date, comparative year-end and first year-end under FRS 102)?
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17.
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For clients with goodwill in the balance sheet: can the useful economic life of that goodwill be estimated reliably, and if not how will the change be processed?
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18.
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Have any clients recently acquired a business since transition date and so might have separate intangibles that must be recognised under FRS 102?
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19.
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Where clients have any assets carried at a valuation, have they been warned that a deferred tax provision will now be necessary?
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20.
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For clients with group defined benefit pension plans, has the client been advised that at least one entity in the group must recognise the surplus or deficit?
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21.
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Has the firm considered whether clients’ systems will be able to identify the amount of short term employee benefits (untaken holiday pay) that should be accrued at each balance sheet date?
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How John McCarthy Consulting Limited Can Help You
Training Courses
FRS 102 will have a major impact on your financial reporting, auditing and tax work. We’re running a wide range of courses on FRS 102 to help ensure your staff are up to date with the changes in relation to your accounts, audit and tax work.
Contact us for details of in-house courses on FRS 102 brought direct to your office. With an in-house course, we can tackle specific issues relevant to your firm. You and your staff save on travel costs and down time.
- Transition Consulting Service
You provide us with a set of FRS 102 financial statements for the transition year 2014 and we will supply you with a written report containing a commentary with suggested adjustments and changes to accounting policies etc.
- Public Course on Tuesday 19 April 2016
For online booking and more details of our next FRS 102 all day public course at the Camden Court Hotel, Dublin 2 click here.
How John McCarthy Consulting Limited Can Help You
We provide you with an FRS 102 Transition Checklist which helps quickly identify the issues you need to focus on. The Checklist retails for €100 plus VAT and comes with a free template letter to clients explaining the main changes to Irish GAAP and a free document listing the Main Differences Between Old Irish GAAP and FRS 102. Go to www.jmcc.ie for details.
File Reviews
With a file review, we can help ensure your audit teams are complying with the new FRS 102 rules. Our file review feedback time counts as a specifically structured CPD learning session for you and your staff.
We can provide:
- Cold file reviews – we review the file after it has been signed off and provide you with verbal feedback and guidance from our findings. We also provide you with a free written report on the day of your review.
- Hot file reviews – we review the file before it has been signed off, allowing you to make any necessary changes before you sign it off. We provide you with verbal feedback and guidance from our findings. We also provide you with a free written report on the day of your review.
Reviews may consist of a full audit or audit exempt file or the review may be confined to a specific issue on a file.
Reviews may be arranged on-site or we can also conduct postal/electronic reviews, provided we are given sufficient notice.
For details of all our FRS102 services
E-mail john@jmcc.ie or call 086 839 8360
by John McCarthy Consulting Ltd. | Feb 17, 2016 | News
Accounting for investment properties prior to the introduction of FRS 102 was probably a minority sport.
Many companies and groups that don’t’ specialize in renting properties can often have periods when some of their properties are rented out or held for capital appreciation (e.g. construction companies with property stocks that they cannot readily sell). Otherwise these properties would have been dealt with as stocks and work in progress. Because of the recent recession and the fact that some such properties are let out to generate much needed rental income, these properties may now qualify as ‘investment properties’. There are some differences between the old SSAP 19 and FRS 102.
The change in definition of an investment property (dealt with in Section 16 of FRS 102) means that entities holding properties that are not owner-occupied need to review the new requirements carefully.
There are three notable differences in the accounting for investment properties between the old and new Irish GAAP.
1. In the definition itself, old Irish GAAP excluded properties that were occupied by group companies and these had to be treated as tangible fixed assets and depreciated. FRS 102 includes them as investment properties. Therefore, these properties may no longer be depreciated and may be valued at fair value.
2. Although both GAAPs require investment property to be measured at fair value (the old GAAP terminology was different but gave essentially the same measure) the movements were recognised in different places. Under old GAAP gains and losses in value were recognised in reserves (via the Statement of Total Recognised Gains and Losses (‘STRGL’). FRS 102 requires such gains/losses to be shown as part of profit in the profit and loss account.
3. In old GAAP, gains on investment property valuations did not normally trigger deferred taxation, unless there was a binding commitment to sell, which would not usually exist at the time the valuation was conducted. In FRS 102, section 19, deferred tax must be provided on all gains and in the case of investment property, the deferred tax will appear in the profit and loss account as part of the taxation charge for the year.
The new approach means that when there are losses, there is no longer any need to apportion the loss to previously reported gains. However, reported profits will be directly impacted by the new approach. The impact may not always be positive.
On transition, loan covenants may need to be reviewed and new arrangements made with lenders, if property borrowers are not to be found in breach of covenant. These breaches could trigger demands for loan repayment, so preparation is key.
FRS 102 Transition Service
Please ask us about our bespoke FRS 102 Transition Service where we will examine client accounts before/after transition and give you a tailored report explaining the issues arising and whether the transition has been successful or not. To enquire just send an e-mail to john@jmcc.ie
Transition Checklist
We provide you with an FRS 102 Transition Checklist which helps quickly identify the issues you need to focus on. The Checklist retails for €100 + VAT and comes complete with:
- a free template letter to clients explaining the main changes to Irish GAAP and
- a free document listing the Main Differences Between Old Irish GAAP and FRS 102.
Go to http://bit.ly/20XUf7Q for details.
by John McCarthy Consulting Ltd. | Feb 1, 2016 | News
More on Parts of FRS 102 That Are Not Yet Applicable in the RoI
Following on last week’s blog piece about Section 1A Small Entities FRS 102, which as you know, does not yet apply in the Republic of Ireland (RoI). There was an error in the blog which stated that charities that were formed as companies limited by guarantee were precluded from using the FRSSE (Financial Reporting Standard for Smaller Entities). However, with the enactment of the Companies Act 2014, companies limited by guarantee may qualify as ‘small’ and may therefore use the FRSSE. Apologies for any confusion.
Meanwhile we would like to draw your attention to another matter in FRS 102. There are now twenty exemptions (where there were previously 18) in Section 35, which many companies will be trawling through, as they transition to FRS 102 for the first time.
Two additional exemptions in Section 35, namely 35.10 (u) ‘Small entities – fair value measurement of financial instruments’ and 35.10 (v) ‘Small entities – financing transactions involving related parties’ . These exemptions were included in the September 2015 version of FRS 102, specifically for ‘small’ entities.
The exemptions give some relief from the amortised cost rule on, for example, directors’ loans, but companies in the Republic of Ireland cannot avail of them just yet, because the relevant company legislation underpinning these rules has not been enacted. Hopefully this will follow soon after the forthcoming election.
The mechanics of these exemptions is that they relate to comparative information only. Companies will have to account for the transactions in accordance with FRS 102 for the first reporting period that they are allowed adopt FRS 102 and make an adjustment to opening reserves at the beginning of the first reporting period (as opposed to the date of transition).
For more on FRS 102 see the following:
1. Updated Transition Checklist (February 2016 version), for more information please click here.
To assist you with the transition work – retails for €100+VAT and accompanied by free:
2. FRS 102 Training Course
To learn the latest developments in accounting and the related company law, come along to our FRS 102 Accounting Update on Tuesday 1 March 2016 at the Camden Court Hotel, Dublin 2. Places are limited and are filling steadily.
For booking details please click here.
3. FRS 102 Transition Service
Please ask us about our bespoke FRS 102 Transition Service where we will examine client accounts before/after transition and give you a tailored report explaining the issues arising and whether the transition has been successful or not. To enquire just send an e-mail to john@jmcc.ie
Our next blog on Investment Properties and FRS 102 will follow next week.
by John McCarthy Consulting Ltd. | Jan 25, 2016 | News
Section 1A of FRS 102 Not Applicable – Suggested Solution
The unwary reader of the latest version of FRS 102 could be forgiven for not realising that Section 1A Small Entities inserted into FRS 102 in September 2015 to accommodate some exemptions for certain qualifying ‘small’ entities, does not yet apply in the Republic of Ireland (RoI). This is because the necessary amendment to Irish company law has not yet been published nor enacted. We understand the necessary law is in draft but may now be delayed by the forthcoming election.
Three other developments are also delayed because they depend on the same legislation in the RoI:
1. Paragraph 19.23 of FRS 102 regarding the useful life of goodwill was updated in September 2015. This allowed that ‘if in exceptional circumstances, an entity is unable to make a reliable estimate of the useful life of goodwill, the life shall not exceed 10 years.’ This change was made in the UK following their implementation of the EU Accounting Directive. However, the equivalent change has not taken place in the RoI for the same reasons mentioned above. Therefore, the previous version of paragraph 19.23 still applies for the time being in RoI. That stated that the maximum life of goodwill, in the absence of a reliable estimate, shall not exceed 5 years.
2. FRS 105 the Micro-entities Regime, does not yet apply in the Republic of Ireland. It is expected that this legislation, when enacted, will exempt certain private companies (within certain criteria) from the requirement to disclose directors’ remuneration. They may also show all below market interest rate inter-company and directors’ loans at cost instead of amortised cost under FRS 102. The relevant criteria are that turnover must be less than €700,000, Balance Sheet Gross Assets less than €350,000 and less than 10 employees, provided two out of three of the criteria are satisfied for two consecutive years.
3. Appendix VI of FRS 102 which, in previous editions of the standard, listed the relevant RoI company law references, was not included in the September 2015 FRS 102 as the FRC state they will update the legislative references once the EU Accounting Directive is implemented.
To comply with EU Directives, the company legislation is required to be effective for accounting periods beginning on or after 1 January 2016. It is not yet clear whether the legislation or its commencement provisions will allow for application to earlier accounting periods such as those beginning on/after 1 January 2015.
Interim solution
In the meantime, for client companies that qualify (i.e. not regulated insurance intermediaries) the 2015 version of the FRSSE (Financial Reporting Standard for Smaller Entities) is available for periods commencing on/after 1 January 2015 for one year only.
This standard is useful as it:
- Allows for an exemption from the cash flow statement, which FRS 102 does not currently do, unless the company qualifies under FRS 101;
- Allows for below market interest rate inter-company and directors’ loans to be stated at cost;
- Largely retains the old Irish GAAP accounting rules for one last year;
- Avoids the need to transition to FRS 102 for the time being.
by John McCarthy Consulting Ltd. | Jan 15, 2016 | News
FRSSE and Companies Limited by Guarantee
A query came in from a client recently about the application of the FRSSE to charities for 2015. It’s worth repeating here, as general knowledge about the application of the FRSSE. Here is the query ‘I read somewhere that charities in Ireland cannot apply FRSSE and must go to FRS 102 for periods beginning on or after 1st January 2015, because they are classed as public companies, is this correct?’
Our response:
The Financial Reporting Standard for Small Entities 2015 was published in July 2013. It applies for one year only to financial statements of ‘small’ entities (as defined in company law) for accounting periods commencing on/after 1 January 2015.
In order to understand how to apply any standard, it is always a good idea to read the Scope section. The Scope Section is in Part 1.1 and footnote number 9 explains that companies entitled to the small company criteria can use the FRSSE.
I don’t know the date article of the you are referring to, but since 1 June 2015 (under the CA 2014), companies limited by guarantee (including many charities) may now avail of the ‘small’/’medium’ thresholds and file abridged accounts, among other things. See more below. The way in which the CA 2014 was brought into law was unprecedented, as it was based on the date the accounts are approved by the Directors.
Let’s take two companies ‘A’ and ‘B’, both limited by guarantee, with a 31 December 2014 period end. Company ‘A’’s financial statements are approved on 21 May 2015 (i.e. under the Companies Acts 1963 to 2013), while Company ‘B’’s financial statements are approved on 21 June 2015 (under the Companies Act, 2014).
The effect of these approval dates are that Company ‘A’ cannot avail of:
• Audit exemption
• Exemption from the presentation of the Cash flow statement under FRS 1
• Abridged financial statements
• The FRSSE as it is not deemed to be a ‘small’ entity, but the equivalent of a ‘public’ company as the financial statements were approved before the enactment of the Companies Act, 2014.
Company ‘B’ however can avail of:
• Audit exemption, unless it is a charity with income in excess of €100,000 when the Charities Act, 2009 requires it to have an audit
• Exemption from the presentation of the Cash flow statement as it is a ‘small’ entity
• Abridged financial statements
• The FRSSE as it is now deemed to be a ‘small’ entity, unless it is a financially regulated entity i.e. an insurance broker (as well as certain other companies included in Sections 8 and 9 of the FRSSE 2015) as the financial statements were approved on/after the date of enactment of the Companies Act, 2014.
