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The UK accounting framework is changing, and we are in the process of dealing with the biggest change to financial reporting here in the UK for 40 years. Financial Reporting Standard (“FRS”) 102 will be the accounting standard that will have the most impact for SME’s here in the UK, with the exception of the very smallest of companies.

What changes are being ushered in by FRS 102? And in particular, what aspects of FRS 102 will impact on manufacturing businesses?

The application of FRS 102 should not lead to significant changes in the reporting of turnover, stocks, trade debtors, trade creditors, plant & machinery and provisions. However some areas that manufacturing businesses will have to give consideration to include:

• Goodwill may have to be amortised over a much shorter period than at present.

• On acquisition of intangible assets, these need identifying and valuing separately to goodwill.

• Financial instruments (including forward exchange contracts and interest rate swaps) should be included on the balance sheet at fair value.

• Lease incentives (rent free periods or reverse premiums) will need to be spread over the expected life of the lease.

• There will be a more comprehensive accounting for deferred taxation, including on revalued assets.

• Holiday pay accrued but unpaid at a financial year end should be provided for in the financial statements.

• There will be two potential ways of accounting for grants received.

• There will be an increase in related party disclosures in connection with, not just company directors, but also key management.

• There are currently situations where properties held within a group structure do not have to be accounted for as investment properties if used within the trade of the group at large. This exclusion is not available in FRS 102.

The above changes could well impact on reported profits, net assets and reserves. You need to understand what the likely impact will be on your own position, with a view to discussing these with key stakeholders, including banks. There are potential consequences for budgets, tax planning, meeting bank covenants and tax payments.

If you want to know more about the impact of FRS 102 on your manufacturing company, please contact Chris Hill on 01392 288555

 

 

By Chris Hill, Partner and member of the Manufacturing & Technology Team