Aidan Clifford, ACCA Ireland advisory services manager

Disclosure of subsidies

The Temporary Wage Subsidy Scheme (TWSS), although in theory a ‘pay-through’ scheme, was in practice a wage subsidy and should be disclosed as such.

The fairest and most transparent way of presenting this in the financial statements is to include the subsidy, along with the Employee Wage Subsidy Scheme (EWSS), as a separate single-line negative expense in the appendix to the financial statements that has the detailed list of expenses and includes the wages amount gross in that appendix as well.

However, FRS 102 requires specific disclosure of:

  • the accounting policy adopted for grants
  • the nature and amounts of grants recognised in the financial statements
  • unfulfilled conditions and other contingencies attaching to grants that have been recognised in income
  • an indication of other forms of government assistance from which the entity has directly benefited

This specific disclosure must be made within the formal financial statements and not just in the appendix. It would be sufficient to disclose Covid-19 wage subsidies received and an amount, rather than splitting the grant into the component parts. It would not be necessary to separate or separately identify any social insurance savings attaching to the EWSS or TWSS payments.

The wage subsidies rules effectively banned a community group from making more in government support than the total employee costs

The Covid Restrictions Support Scheme (CRSS), also called an advance credit for trading expenses, is different to the TWSS and EWSS as it does not attach to wages and is, as the name suggests, an acceleration of the recognition of future expenses. Some have described the CRSS as borrowing from the business’s future profits; the CRSS will therefore attract deferred taxation.

Because the CRSS is designed to support businesses that are closed due to Covid-19 and is not linked to employees, it can be disclosure in ‘other income’ or as a negative expenses, although the latter would be more usual and consistent with the treatment of grants generally.

The deferred taxation attaching to the CRSS will be the tax deduction forgone in the future because of accepting the subsidy. That will be the CRSS multiplied by the entities tax rate. Even where there is a loss, the CRSS will reduce any potential deferred tax asset attaching to those tax losses. For very small CRSS claims the deferred taxation may be immaterial and, in those cases, could be ignored.

Wage subsidy repayment

There have been questions over whether the wage subsidy becomes repayable in the event of a successful business interruption insurance claim.

According to S28B (2)(a) (i) of the Financial Provisions (Covid-19) (No. 2) Act 2020, ‘there will occur in…the specified period…at least a 30 per cent reduction…in either the turnover of the employer’s business or in the customer orders being received by the employer by reference to the corresponding period’.

Turnover is defined in the Companies Act as ‘the amounts of revenue derived from the provision of goods and services falling within the company’s ordinary activities’. In FRS 102, revenue is defined as ‘the gross inflow of economic benefits during the period arising in the course of the ordinary activities of an entity’.

Receipts under a business interruption insurance policy would not meet the definition of turnover in either the Companies Act or GAAP. Therefore, even though a business may be compensated for the loss of sales, it still incurred those losses and would be entitled, all other things being equal, to continue to claim the wage subsidy.

Government-funded community schemes

A number of government agencies, such as Tusla, Pobal, the Health Service Executive and local councils, provide funding for community schemes. All of this funding comes in scope of the reporting requirements in DPER Circular 13/2014, Management of and Accountability for Grants from Exchequer Funds.

One of the key requirements of this circular is that each activity that is separately funded within any one entity has to have a separate fund account disclosed in the notes to the annual financial statements.

A simple example would be a community facility with funding for a childcare programme and separate funding for an eldercare programme. Such an entity will need to do a mini-income and expenditure for each of these activities showing the separate funding and separate costs of each. This is then consolidated in the main statutory income and expenditure account.

Any wage subsidies received by the entity will need to be included within each fund account. The government was clear that there was to be no ‘double-dipping’; entities should not, for example, get full Pobal funding and full wage subsidy funding for the same employee.

The rules attaching to the wage subsidies effectively banned a community group from making more in government support than the total employee costs.

The wage subsidies should only replace the loss of community fundraising or commercial funding where, for example, a charity shop was forced to close due to the pandemic. Auditors will need to look closely at the need for an accrual for repayment where they determine that any of the wage subsidy terms or conditions were breached, or if any of the other funding conditions were breached on any of the individual activities on an activity-by-activity basis.

Good Governance Awards

Established in 2016, the Good Governance Awards seek to acknowledge, encourage and promote good practice, primarily in the area of annual reports.

The awards also provide practical examples to other organisations as to what an excellent or very good directors’ report and financial statements look like.

The organisers are looking for volunteers to join their panel of assessors for 2021. For more information, email Diarmaid Ó Corrbuí, CEO at Carmichael.