“A lot accountants are nervous about them because they’ve never done transitions before,” says Steve Collings.
He’s talking about new financial reporting standards (FRS) for small UK companies.
Perhaps the most important new accounting rule is FRS 102 for UK small and medium-sized enterprises. It replaces UK Generally Accepted Accounting Principles (GAAP) and has different rules for goodwill and intangible assets, group defined benefit schemes and deferred tax, according to accounting firm Deloitte. It also contains extensive guidance on accounting for financial instruments, including derivatives.
“Effectively December 2016 year ends will be the first set of financial statements for the new FRS 102 framework,” says Collings, . “A lot of accountants are thinking, ‘I’m not used to this’. With the new accounting rules, you have to restate all the previous years’ comparative [figures]. Accountants will have to do all this additional work on accounts that have already been approved.”
Company loans will be accounted for differently. For example, under the old rules if a director makes a £200,000 interest-free loan to the company that money would just sit there in the balance sheet as a creditor. It’s not as simple under FRS 102. “There are lots of different considerations, are there loan terms, what would be the equivalent market rate on the loan, restating the loan potentially. There are a different accounting treatments in the new [accounting] regime that some accountants are unfamiliar with.”
The challenge next year is going to be “getting people’s head around the new rules”, Collings says.
How can accountants swat up on the new accounting rules?
AAT has a lot of information on the website, including webinars, says Collings who writes articles about financial reporting for the AAT Comment.
In the longer term, though, the new accounting rules should be easier to use. “I think old UK GAAP [for SMEs] is about 3,600 pages long,” Collings says. “It became very disjointed and complicated. A lot of accountants always complained about the sheer size of the standards and always complained about the disclosure requirements. My September 2015 edition of FRS 102 is 378 pages long. FRS 102 is not necessarily a bad thing because times do have to change [and accounting rules should reflect changes to business practices].”
In 2000, Collings joined Leavitt Walmsley Associates (LWA) Ltd, an accounting business with offices in Manchester and Warrington. He qualified as an accountant with the ACCA in 2005. Collings is a director at LWA. He’s responsible for technical compliance, financial reporting, audits and making sure that accounts are “done correctly and can stand up to scrutiny.”
After Collings qualified as an accountant he became interested in disclosures in financial statements. Many companies seemed to find making financial disclosures difficult, he says.
Collings did a diploma in international financial reporting standards with the ACCA and then a certificate in IFRS, and a diploma and certificate in international auditing standards, plus a diploma in IFRS for SMEs. “I do have a life you know beyond accounting standard,” he jokes.
It can be hard explaining FRS to clients. “In a lot of cases clients will say well we don’t understand it and that’s what we’re paying you to do. A lot of accountants say to me ‘the clients don’t understand the accounts”. I’ve never understood why an accountant would say that to me…because in my mind if I’m going to sign something I want to know what I’ve signed. I think it’s an accountant’s job to make the client understand.”
Collings also writes books on financial reporting, including ‘IFRS For Dummies’, and ‘Accounts and Audit of LLPs’.
How does he find the time?
“I do have a wall planner at home. At the start of every year after I come back from holiday at Christmas I schedule in the times I’m going to actually spend writing and I do stick to them religiously. But I’ve also got a great team at LWA where I can delegate work when I have a deadline coming up.”
What’s his advice for young accountants who might be interested in specialising in financial reporting? “A lot of people go down the tax route because it’s a very interesting subject. But in financial reporting if you don’t get the accounts right then your tax isn’t going to be right. Tax is a product of the accounts. If someone does want to specialise in accounting [financial reporting] and auditing…my advice would be just to keep up to date with everything that goes on at the FRC [Financial Reporting Council] …which has to track what goes on with the [international financial reporting standards]. It is quite difficult sometimes also keeping track of what’s happening with company law…the legislation is a minefield.”
Any other advice? Work hard because accountancy [assessments] are designed to be very tough and keep up to date with changes to accounting rules and company law, he says.
In his spare time Collings enjoys socialising, going on holidays and skiing, despite it taking him five years to “get from the top of a hill to the bottom without falling over”.
Nick Huber is a freelance journalist and has written for Accounting Technician magazine, The Guardian and BBC.