Classification of debt
IAS 1 has been amended for annual reporting periods beginning on or after 1 January 2023, with earlier application permitted. The amendment in para 69 has a very strict requirement for classifying debt as long term, which requires in summary the absolute right to defer repayment for 12 months.
The IFRS Interpretations Committee has issued a tentative agenda decision illustrating the application of the amendment and providing three examples for clarification:
- where breached covenants are waived before the year-end but only for three months
- where covenants are only tested at the year-end but are breached at the sign-off date
- where the covenant requirement increases at a future date and is not currently met but is expected to be at that future date
In all three cases the loan is required to be reclassified as short term.
The International Accounting Standards Board (IASB) has issued an exposure draft extending the optional Covid-19 lease concession for a further year to cover rents due up to end of June 2022.
The concession allows for lease holidays, given because of the pandemic, not to be treated as a lease modification. As a result, the reduction in rent will be recognised in income in the period. Without the concession the lease right to use asset and lease liability would have to be recalculated. The European Financial Reporting Advisory Group (EFRAG) has issued a draft endorsement advice letter relating to this change.
To increase confidence in integrated reporting, the International Federation of Accountants (IFAC) and the International Integrated Reporting Council (IIRC) are launching a new joint initiative on accelerating integrated reporting assurance in the public interest.
The initiative recognises that new thinking is required to determine what comprises integrated report assurance and how to best deliver it, given integrated reporting’s broad and forward-looking focus on value creation. The first instalment of the initiative sets out what integrated reporting assurance involves for organisations, auditors and others. It also addresses the difference between the two types of assurance – limited and reasonable – and what is required of auditors and organisations to strive for reasonable integrated reporting assurance.
ACCA’s own integrated report is a good example of how effective this approach can be, and demonstrates the value creation and societal impact of ACCA in a single page.
VAT compensation for charities
The deadline for charities to make claims under the VAT compensation scheme is approaching –claims made after 30 June 2021 will not be included. The funding is capped at €5m and divided among applicants on a pro rata basis if claims exceed that figure.
In 2019 claimants were paid 13% of their claims and in 2020 10% of claims. It is anticipated that, with the shortfall in fundraising and corresponding reduction in eligible spending, the amount claimed in 2021 will reduce and the percentage of claims refunded will therefore increase. The scheme is subject to terms and conditions, particularly relating to what can be claimed and what is ineligible. You can find details here.
UK GAAP used to require the disclosure of ‘exceptional items’ on the face of the income statement. Nowadays, FRS 102 has a requirement in paragraph 5.9 to disclose ‘additional line items, headings and subtotals in the [profit and loss account] … when such presentation is relevant to an understanding of the entity’s financial performance’. It amounts to the same requirement, but the term ‘exceptional item’ is not used to describe the matter being disclosed. Extraordinary items, which were not allowed under old UK GAAP, continue to be disallowed under FRS 102.
In the case of exceptional expenses arising from Covid-19, a company can choose to separately disclose specific impairments or costs directly arising. However, the separate disclosure should not include notional lost sales or general expenses that would have happened anyway.
A single Central Bank-regulated entity in a group renders that group non-small, and requires it to undertake an audit and provide the consolidation and additional disclosure required by a non-small company; PAASE (Provisions Available for Audits of Smaller Entities) cannot be used for the parent or consolidation. Similarly, if one group company is late filing its annual return, then, with the exception of dormant subsidiaries, the whole group loses its audit exemption. The Companies Act references are given below.
A parent company is exempt from preparing consolidated accounts if it is a ‘small’ holding company. However, section 280B(5) states that the exemption ‘shall not apply to a holding company of a group if any member of the group is an ineligible entity’. Section 12(a)(ii)(d)(I) defines an ineligible entity as any entity that is regulated by the Central Bank. If any member of a group is regulated by the Central Bank, then the group needs to produce consolidated accounts no matter how small it is.
Section 359 ‘(audit exemption) applies to any group company in respect of its statutory financial statements for a particular financial year if the group qualifies as a small group in relation to that financial year’. As above, section 280B outscopes any group with a Central Bank-regulated company in the group from the definition of ‘small group’.
Section 362 repeats this provision: ‘a holding company and the other members of the group are not entitled to the audit exemption referred to in that section if … the holding company … or any of those other (group) members is … a company falling within any provision of schedule 5 [ie Central Bank-regulated]’.
Section 364 bars the group from obtaining audit exemption if any member of the group is late filing its annual return: ‘a holding company and the other members of the group are not entitled to the audit exemption … where any (company in the group) failed to deliver (an annual return on time) to the registrar (excluding the first annual return of a company)’.
Failure to comply with the consolidation or audit exemption requirements is a category 2 offence under the Companies Act 2014.