From 1 January 2015, all UK businesses are being required to deal with a significant reshaping of UK accounting principles.
…particularly those with temps
From 1 January 2015, all UK businesses are being required to deal with a significant reshaping of UK accounting principles.
Financial Reporting Standard 102 has been introduced as a replacement for all existing Financial Reporting Standards (FRSs) and Standard Statements of Accounting Principles (SSAPs) with immediate effect.
This new Financial Reporting Standard represents one of the biggest changes to UK accounting legislation for many years and will affect those trading in the recruitment industry. Any impact may be restricted to a simple increase in level of disclosure but, nevertheless, due consideration needs to be given.
The context of the standard is very much based around International Financial Reporting Standards, although having been through a number of consultation processes it is much more aligned with existing UK GAAP (Generally Accepted Accounting Principles) than it previously was.
Some of you will be familiar with this new legislation as you may have chosen to adopt early. However, for many of you smaller and medium-sized businesses, this maybe the first time you’ve heard of these changes. Please note that adoption is compulsory for financial years ending on or after 31 December 2015 and there is also a requirement to amend the previous years comparative figures.
The good news is the recruitment industry is likely to be less affected than most. That being said, there are a number of areas that will need to be addressed. The impact of FRS 102 will vary from business to business but the most common issues my clients will face surround their accounting for holiday pay, loan arrangements and property assets.
Where your holiday pay year end aligns with your accounting year end, no significant impact is expected. However, where they vary, any unused holiday entitlements at the end of the financial year should be accrued for and this will show as an additional cost on your company’s profit and loss account. This is particularly relevant to those who provide temporary worker services.
You will be required to assess the unpaid holiday pay at the year end and accrue accordingly. If you have many temporary workers and poor systems for capturing the data, this may prove to be a significant task.
We should also mention that where an employee leaves and no cash payment is made, the accrual is based on an estimate of the average unused holiday entitlement per employee and the percentage of employees who leave, never having taken their unused holiday allowance.
This will be an issue for loans that carry no interest or interest at below market rates. Currently those loans are included in the Balance Sheet at their carrying value and interest is not recognised on loans that do not carry interest. Under FRS 102, the Balance Sheet needs to include a market rate of interest having discounted the cash flows and the charge is then included in the Profit and Loss Account. This may impact intercompany loans, for example.
This is particularly relevant to properties that have been revalued or those that are classified as investment properties.
In both cases deferred tax should be calculated and potentially passed through the Profit and Loss Account. Investment property revaluations also need to be shown in the Profit and Loss account. There are stipulations on the frequency of valuations and the use of revaluation reserves.
These are three of the more common legislative changes that are likely to affect those trading in the recruitment industry. However, it is fair to say that there are many other changes which we have not detailed here that may affect your company.
Should you have any queries regarding the adoption of FRS 102 and the impact it may have on your agency, please feel free to talk to us on . 0845 606 9632 or contact us via our webform.
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