Essentially FRS102 is the new accounting standard we have to follow when preparing your company accounts, and details what information we need to display.
Right, we can hear you breathe a sigh of relief; thank goodness it’s nothing to do with me! Well, hold on, it will affect you, so don’t stop reading! So what’s the score?
We’ll make it easy to understand, promise! But you do need to know about it, so it’s not time to switch off just yet!
In a nutshell, this new reporting standard may well affect your tax liabilities and profits among other things. So it’s important to know about for forecasting and budgeting going forward.
Your company accounts will look different, and there is different language being used, for example, instead of using debtors and creditors, they are now referred to as receivables and payables. Overall, there are hundreds of pages to go through detailing the new standards, but without boring you with the minutiae, here’s a summary of some of the most relevant changes:
- Holiday pay – if you allow your employees to carry over unused holiday into the next financial year, then this now has to be reported within the financial statements. So for example, if you run your holiday system from Jan-Dec, and your financial year from April to March, then any unused holiday needs to be listed as a liability
- Investment properties – any property you hold has to be included in the accounts, calculated at the market value each year. Previously, any increase or decrease in the value went into a separate column in the balance sheet, it’s now going to move over to the profit and loss account, which could make a huge difference to the profit amount then calculated as a result. Deferred tax must be calculated (but is not payable until the property is actually sold) on the change in value. The profits cannot be distributed, for example, as dividends
- Cash flow statement – this is a new one. There were lots of instances where the accounts didn’t have to include a cash flow statement, but now….you do. So another document to keep up to date to make reporting easier
- Leases – even if you don’t own the asset, it still now needs to be noted as a liability – a change to the rules before
- Investments – similar to investment properties – the value has to be calculated at current rates, and is now included on the profit and loss account. The tax is calculated and therefore payable on any increase in value
- Related party disclosure – there is a lot more that the accounts need to disclose now, compared to before. This includes salary and benefits paid to close family members as well as additional information needed when advances, credits and guarantees are provided to a director. Basically, transparency is key
So there you have it. Complicated rules that we must follow, but as a result, may make a difference to the profitability of your company, and the amount of tax that you may, or may not have to pay.
The key is to involve your accountant at all stages of the business, ensure you are having regular meetings, and keep them in the loop. And of course, keeping your accounts up to date will make the job easier for us! That way, we can spend the time helping you to develop your strategy to help you rocket forward in your business!