Module 8 - Accounting and Disclosure Flashcards
What is a balance sheet?
A snapshot of a company’s financial position at the end of the year
What is a profit and loss account?
Income/ expenditure of a company over the financial year
What are consolidated accounts?
Accounts of all the group companies, put together; these are the published accounts and at the end there is usually a brie section which are the parent company’s accounts
What is the purpose of the accounts?
To give a true and fair view of the state of affairs of a company over a financial year; it is addressed to shareholders
What rules regulate accounts?
The Companies Act 2006; Regulations under the Companies Acts; Accounting standards (there are various); and for London listed companies: the Listing Rules and UK Corporate Governance Code
There is also usually guidance provide by some institutional investors
Where is the law regulating a company’s accounts? What has been the most recent update to these regulations?
The Companies Act 2006 Sections 394 & 396 - basic rules that set out that company must prepare accounts for each financial year
Large & Medium Sized Companies and Group 2013 (Accounts and Reports) Regulations or the “Accounts Regulations” - include further rules, especially about executive pay
Most recent update to the above: Companies (Miscellaneous Reporting) Regulations 2018
What are the rules about Directors’ emoluments and where are the rules?
Schedule 8 of the Companies Act 2006 - disclosure requirement for UK-incorporated listed companies
New Rules coming about Rem Report to expand scope of who/what should be disclosed - now unquoted trading companies are also included
Large private companies have to make a clear statement about which corporate governance codes they are going to follow
What share plans related information might be included in the Directors’ Report?
Schedule 7, Para 11: involvement of employees in performance; what activities are used to engage employees in the companies performance (share plans!)
Paragraph 13, Takeover directive disclosure requirements; change of control provisions (share plans might also be mentioned here
What are the directors’ obligations with the annual accounts?
Approve & sign; Have independed audit; send to shareholders and put to vote; Put the Directors’ Rem Report (DRR) to vote; File with Companies house (within 6 months of year end or 9 months for private companies)
How long do companies have to file their annual accounts after the end of the financial year?
6 months (or 9 months if private company)
Who sets the UK Accounting Standards and the UK Corporate Governance Code?
FRC - Financial Reporting Council
What is UK GAAP?
Generally Accepted Accounting Practice in the UK (UK GAAP) is the body of accounting standards and other guidance published by the UK’s Financial Reporting Council (FRC). The financial reporting framework in the UK is effective from 1 January 2015.
What is the IASB?
International Accounting Standards Board - Creates the International Accounting Standards (IASs) and the International Financial Reporting Standard (IFRSs)
What does IAS stand for?
International Accounting Standards - set by the IASB
What does IFRS stand for?
International Financial Reporting Standard - set by the IASB
How much the FRC and IASB differ in thinking?
The FRC largely sticks to IASB thinking
What is IAS 24?
Set by IASB; disclosure of party related transactions and includes key management personnel; requires disclosure on aggregated basis (not on individual basis) of:
- short term and post employments benefits
- Other long term benefits
- termination benefits
- Equity compensations benefits
When was there a major shift in the financial reporting standards? What was the more recent change to FRS?
Major change in mid-2000’s - the new FRS applied to accounts ending on or after 1 January 2015
How did the old financial reporting standards impact the profit/loss account?
Actual shares would show a more straightforward cash charge and then increase in the number of shares; options were the major issue - there would be no impact on the company’s profits - was a very good deal for companies but was not accurate reflection of what was happening
What is a Section 86 Trust?
A discretionary trust for the benefit of employees; established by a company to help provide shares for its share plans - trust can pay less than nominal value for shares
What is the accounting treatment for a company that has a trust?
FRS 102 and IFRS 10 - for accounting purposes, the trust is part of the company (even though they’re meant to be independent and discretionary)
Accounting for trusts: What happens to accounts if there is a cash gift or loan to the trust?
No impact on accounts
Accounting for trusts: What happens to the accounts if a Trust borrows from a bank?
as if the company had borrowed itself (so shown as a liability to the company)
Accounting for trusts: What happens to the accounts if the Trust buys shares?
FRS: cost deducted from the company’s assets
IFRS: treated as treasury shares
