by Lisa Weaver
Here are the top five issues that preparers of accounts need to be aware of when planning their transition to the new standard:
- FRS 102 1A requires reporting entities to produce a balance sheet, profit and loss account, and some notes to the financial statements. There is no requirement to produce a cash flow statement or statements of changes in equity, but these can be produced on a voluntary basis. Preparers of the accounts will therefore need to consider whether the production of statements such as the cash flow will be expected by stakeholders even if not actually required by the accounting standards.
- The disclosure requirements will be different from previous GAAP, in some situations the requirements may be simpler, for example in respect of related party transactions, but in some cases more comprehensive, for example in relation to financial instruments. Care should be taken to ensure that disclosures are not just rolled over, but proper attention is given to the sufficiency of what is being disclosed in the financial statements.
- The above point is especially important given that the accounts are required to show a true and fair view (there is not a presumption of true and fair, as is the case for micro-entities) so directors may need to consider additional disclosures if the minimum required by FRS 102 1A is not appropriate in the reporting entity's circumstances.
- The recognition and measurement rules for small entities are based on FRS 102 requirements, which in turn are based on IFRS. Therefore there will need to be a detailed evaluation of an entity's accounting policies, which may need to be changed. Significant changes will be possible if an entity has for example financial instruments, investment properties and other assets held at fair value and government grants.
- It is important to keep an audit trail of adjustments made to the accounts on transition, even if the company does not have a statutory audit. The adjustments do not have to be disclosed in the accounts, but may need to be explained and justified, for example in the event of a tax investigation or if the accounts are used for obtaining finance.
You can view one of Lisa Weaver's most popular courses here: Managing your Transition to IFRS.