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Accounting change imminent

Firms advised to note impact of FRS102

Mark McCluskeyCompanies have been warned they face serious tax and accounting implications for their businesses if they don’t act immediately to implement the new FRS102 accounting standard.

It is likely to impact on  tax, asset value, the future ability to raise finance, payment of dividends and other integral elements of running a company.

Introduced on January, FRS 102 primarily targets all medium and large companies and brings financial instruments on to the balance sheet for the first time. It means that businesses with December 2015 year ends should aim to ensure they are compliant by the end of next month, says Mark McCluskey, audit partner at accountant and business adviser BDO.

He says, for example, the new accounting standards will affect firms involved with interest swaps – which will involve many nursing home groups with tied interest rates over a lengthy period – foreign currency contracts; and business combinations.

Mr McCluskey explains: “There are many commercial, practical and tax implications of FRS 102 which business owners should consider. The danger is that the longer business owners take to act could mean many will be unable to counteract any negative impact these changes may have on their balance sheet.

“For example, asset values, debt covenants, management agreements and remuneration calculations may all be affected. For owners wishing to sell their business they may find the asset value severely reduced limiting their opportunities for a successful sale.

“Further issues could arise for budgeting, forecasts and tax planning. Dividends could be restricted as companies distributable reserves may be affected by these changes.

“These changes were introduced to simplify financial reporting but, certainly in the short term, this may not be the case. Company owners need to look now at their systems and actions to ensure they are making their businesses compliant before the deadline when they may feel rushed into decisions which could ultimately be detrimental.”

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