Accounting for everyone ™

Going concern
Accruals
Consistency
Prudence

Government grants should be recognised in the profit and loss account to match them with the expenditure towards which they are intended to contribute.

Government grants which have been received but not recognised in the profit and loss account are classified as deferred income in the balance sheet.

SSAP5

Turnover in the profit and loss account should exclude VAT.

Stocks are included in the balance sheet at the lower of cost and net realisable value.

Long term contracts are reflected in the profit and loss account by recording turnover and related costs as the contract activity progresses. Attributable profit is only recorded when the outcome of the contract is reasonably certain.

Expenditure on research should be written off as it is incurred.

Expenditure on development may be written off as incurred or, if certain stringent conditions are met, capitalised and amortised in line with sale or use of the product or process.

Amount in financial statements should be adjusted to reflect material post balance sheet events which provide additional evidence of conditions existing at the balance sheet date (‘adjusting events’).

Financial statements should disclose material post balance sheet events which concern conditions which did not exist at the balance sheet date (‘non adjusting events’) if they are of such materiality that the ability of users to understand financial position is affected.

Individual companies should translate transactions denominated in foreign currencies at the rate prevailing at the date of the transaction. At year end, monetary assets and liabilities denominated in foreign currencies should be retranslated to the closing rate.

Financial statements of foreign enterprises should normally be translated for consolidation purposes at the closing rate. The profit and loss account may be translated at either the closing rate or average rate.

At the inception of a finance lease, the amount included in assets and creditors is the present value of the minimum lease payments (or fair value, as an approximation).

Finance charges are allocated to accounting periods to produce a constant periodic rate of charge on the outstanding balance.

The expected cost of providing pensions is recognised on a systematic basis over the period during which the employer derives benefit from the employees' services.

The difference between amounts charged to profit and loss and contributions paid is reflected in the balance sheet as a prepayment or accrual.

Turnover, profit before tax and net assets should be reported by class of business and by geographical segment.

Segmental reporting is not required where, in the opinion of the directors, it would be seriously prejudicial to the interests of the company.

• operating

• dividends from associates and joint ventures

• returns on investments

• tax

• capital expenditure and financial investment

• acquisitions and disposals

• equity dividends paid

• management of liquid resources

• financing

Requires the profit and loss account to distinguish from turnover to operating profit, continuing operations (with acquisitions shown separately) and discontinued operations.

Requires a fourth primary statement - the statement of total recognised gains and losses.

Requires capital instruments to be classified as liabilities if they contain an obligation to transfer economic benefits and as shareholders funds if they do not contain an obligation to transfer economic benefits.

Immediately after issue, all capital instruments are to be stated at the net proceeds (fair value - issue costs).

Requires the substance of transactions (rather than the legal form) to be reported in the financial statements.

Assets and liabilities are only recognised if there is sufficient evidence of existence and they can be measured at a monetary amount with sufficient reliability.

Requires goodwill to be calculated by reference to fair values which reflect conditions at acquisition.

All post acquisition items (e.g. reorganisation costs, operating losses) are to be reported in post acquisition results.

Requires disclosure of ultimate controlling party and of material transactions with related parties.

There are a number of exemptions regarding groups.

Requires associates to be included in consolidated FS using the equity method. In P&L, include share of associates’ operating profit, interest and exceptional items. In BS, include share of net assets.

Requires joint ventures to be included in consolidated FS using the gross equity method. In addition to above, in BS show (on face of BS) share of gross assets and liabilities and in P&L show (distinguished from group turnover) share of turnover.

Purchased goodwill and intangibles to be capitalised as assets.

Where goodwill and intangibles have a limited useful economic life, they are to be amortised over those lives. Where goodwill and intangibles have an indefinite useful economic life, they should not be amortised but are to be subject to an annual impairment review.

Requires fixed assets to be tested for impairment if events indicate carrying value may not be recoverable.

Fixed assets to be written down to recoverable amount (higher of net realisable value and value in use) if this is less than carrying amount.

• there is a present obligation as the result of a past event; and

• it is probable that there will be an outflow of benefits; and

• the amount can be estimated reliably.

Contingent liabilities to be disclosed unless remote.

Narrative disclosure of objectives, policies and strategies required.

Numerical disclosure of interest rate risk, currency risk, liquidity risk, fair values, trading instruments, hedging instruments and certain commodity contracts required.

Revaluation is still optional but must be kept up to date by full revaluation at least every 5 years.

With the exception of non-depreciable land, annual impairment reviews must be performed if tangible fixed assets are not depreciated or are depreciated over a period exceeding 50 years.

The tax charge in the profit and loss account will include: 
     Corporation tax (current and deferred) for the
         current year
     Amounts under or over provided in the prior year

Dividends received from UK companies are reported as the net amount received.  Dividends received from other countries are reported gross only to the extent that they have suffered a withholding tax.

Defined benefit scheme assets are to be measured at fair value.  Surpluses and deficits in defined benefit schemes are to be recognised as assets and liabilities by the employer (in most circumstances).  Changes in the defined benefit asset or liability are to be analysed into various components, some of which affect earnings (as pension costs or finance costs) and some of which by-pass the profit and loss account.

SSAP24 will be superceded.

Accounting policies should be consistent with accounting standards, UITF Abstracts and companies legislation.  Appropriateness to particular circumstances should be judged against the objectives of relevance, reliability, comparability and understandability.

SSAP2 will be superceded.

Full provision is to be made for deferred tax assets and liabilities arising from timing differences between the recognition of gains and losses in the financial statements and their recognition in a tax computation.  Discounting of deferred tax assets and liabilities will be permitted but not required.

SSAP15 will be superceded.