After a good few years of nothing really changing much things have got a bit exciting for us accountants this year with the introduction of IFRS 9, which replaces IAS 39 for the treatment of financial instruments.
To start with the categories that classify financial assets and dictate their accounting treatment have changed and which assets fit under which categories has also changed. It’s out with the old ‘Available for Sale’ and in with its similar-but-not-quite-the-same replacement ‘Fair Value Though Other Comprehensive Income (FVOCI)’. Bonds that were tradable were previously all held at their market value on the balance sheet but are now more likely to be held at amortised cost. Shares in the more volatile but strategically income-generating pooled funds, used to have their fluctuations in value go to a reserve. This is no longer automatic; authorities must argue their case with auditors to make an allowable election to the contrary or (if they are English) rely on a five-year statutory override. Unquoted equities that are financial instruments can no longer be valued at cost.
As if that wasn’t enough to keep everyone busy, this year has also brought in the calculation of an ‘Expected Credit Loss’, an allowance that must be set aside to recognise the potential for investment counterparties and trade receivables to default on their repayments. Sensibly calculating what this should be means gaining an objective understanding of how likely your counterparty is to not pay you back i.e. how much money you will lose and when you will lose it.
And that is just the numbers. Despite the periodic calls for published accounts to be simplified and shortened all these changes come with additional disclosures, both qualitative and quantitative. There will be additional discussions about assumptions, variances and reconciling tables to do this year.
Happily, Arlingclose are here to help. We offer a two-day Audit Assurance Service where we can thoroughly review the capital finance and treasury management sections of your final accounts and the associated working papers. This can give you confidence that IFRS 9 and the pre-existing accounting standards have been followed correctly, that disclosure notes are correct, that primary statements and disclosure notes reconcile and that the Capital Financing Requirement (CFR) and Minimum Revenue Provision (MRP) have been correctly calculated. We can give a steer as to materiality and help you avoid the common pitfall of the disclosure notes containing too much or too little detail.
We can also assist you with working out the fair value of unquoted equity investments that you own especially if these are new or were previously valued at cost. As these are often in unique companies with varying business models and trading histories their value can be less than obvious. Arlingclose can use our expertise and experience to provide an audit-ready objective valuation. We can also calculate the Expected Credit Loss for your more complicated non-treasury loans by providing an informed view as to the counterparty’s credit worthiness and the product’s inherent risk.
If you would like more information on any of these services, please contact Laura Fallon at firstname.lastname@example.org or 08448 808 200.