Financial statement compliance

Paul Kelly looks at the impact of FRS 102 and Companies (Accounting) Bill 2016.

Most SME businesses have now gone through the process of preparing their first financial statements under FRS 102. This new standard replaced current Irish and UK GAAP accounting standards for accounting periods commencing on or after 1st January 2015 (with transitional arrangements from 1st January 2014). It applies to all non-listed entities but also permits smaller entities to retain or apply the Financial Reporting Standard for Smaller Entities (FRSSE).

FRS 102 requires the basic principles essential for a fair presentation of the financial statements. A statement of compliance with the FRS 102 is required in the financial statements. However, it clearly states that a complete set of financial statements should include each of the following primary statements for the current period and for the comparable period:

• Statement of Financial Position (i.e. the balance sheet)
• Statement of Comprehensive Income (profit and loss account)
• Statement of Changes in Equity
• Statement of Cash Flows; and
• Notes.

It is possible to retain the use of headings, Profit and Loss, and Balance sheet as those titles are contained in the Schedules to the Companies Act 2014.The treatment of the following may change in the financial statements:

• Fixed Assets;
• Investments;
• Goodwill
• Financial Instruments including Directors current accounts;
• Specific Provisions including bad debts and deferred tax;
• Financial disclosures; and,
• Employee benefits, key management and related party disclosures.

As a result of the above, comparative figures may change from those previously approved.

Each entity needs to assess if any agreements in place are based on financial results. These include debt covenants, management agreements and remuneration schemes. Agreements may need
to be renegotiated as a consequence.

It will also have an impact for budgets, forecasts and tax planning. Financial institutions are now more familiar with these presentation changes and how they  impact the interpretation of financial information. Companies will need to assess if their current accounting systems are adequate to meet the transition, and should include some staff training on accounting entries
and reporting. Company tax liabilities could also be significantly impacted and it is important to consider their timing impact.

Companies (Accounting) Bill 2016

During August 2016, the Government published the Companies (Accounting) Bill 2016. This Bill, when enacted, will amend the Companies Act 2014 and will transpose the EU Accounting Directive into Irish Law. The Bill will introduce a small companies regime and a micro companies regime in Ireland. It will allow for the use in Ireland of the small entities section of FRS 102. This replaces the FRSEE with effect from 1st January 2016.

It will also allow for the use of FRS 105, the Financial Reporting Standard applicable to the Micro-entities Regime by micro companies. FRS 105 also reflects the fact that very limited disclosures are required in micro-entity accounts. The thresholds for small companies are proposed to be raised to the EU maximum levels of: turnover not exceeding €12 million and balance sheet total not exceeding €6 million (See Table 1).

Table 1

A company that exceeds two or more thresholds will move to the next category. Large companies are ones which exceed two or more of the thresholds for a Medium company.

The Bill proposes to insert a new Part 26 with regard to preparing and filing with the CRO, by large companies, large groups and public interest entities active in the mining and extractive industries, including annual reports on payments made to governments. Also included are other amendments to various sections of the Companies Act 2014. The Bill as initially proposed may change as it makes its way through the Houses of the Oireachtas prior to being finally signed into law.

As a company director, you are responsible for the implementation of, and company compliance with, laws and regulations and how these affect the preparation of your annual financial statements. Please consult a financial/tax advisor to see how this information affects your business.

Paul Kelly is an Audit Manager at Byrne Casey & Associates, joining in 2005 and specialises in Audit, Corporate Finance and Business Due Diligence. Paul is a member of Chartered Accountants Ireland.

This Business Support article featured in the January/February 2017 edition of The Hardware Journal.