Worldwide OfficesNew SME accounting rules – pros and cons
“Irish companies are set to discard the UK accounting rules they have been moored to for decades and adopt an international accounting code – the so called IFRS – for small and medium sized businesses,” says BusinessWorld. Are you one of them?
Quoted companies already use IFRS, but so called “Non public Interest” or unquoted companies will have to adapt IFRS for SME in 2012/2013.
Reported profits will be different under the new rules, for some businesses it will be higher and some lower; it depends on what business the company is undertaking, explained Aidan Clifford, ACCA’s (Association of Chartered Certified Accountants) Advisory Services manager.
For example, a company with a lot of intellectual property will have a different affect on their profits to a property owning company. Assets and liabilities will be measured differently and some new assets and liabilities will appear on an IFRS for SME balance sheet that were not there under UK rules. For example, property may be re-valued to market value under UK rules but must stay at cost under IFRS for SME; some financial instruments such as derivatives were “off balance sheet” under UK rules but will be included at fair value under IFRS for SME. The former example will tend to show lower building valuations and lower depreciation and higher profits under IFRS for SME and the latter example will accelerate profits in the short term and reduce long term profits under IFRS for SME.
A newly published guide (The new Irish GAAP – how would the numbers look? – A report on whether the IFRSfor SMEs will affect the reported profits of Irish companies), produced by ACCA identifies the major accounting and tax differences and the opportunities the change will bring.
“It is important for companies to identify where the change might be an issue for their business at the earliest opportunity. Performance related pay and bank loan covenants being breached could be an issue simply because of the different way of measuring profits and assets and liabilities. ACCA’s publication identifies the accounting and taxation implications of the change and whether profits would be higher or lower under IFRS for SME for different types of businesses,” said Mr Clifford.
Other useful guides to IFRS include:
http://ireland.accaglobal.com/pubs/ireland/members/tech_info/accounting/tech_afb_nig.pdf
http://www.cpaireland.ie/UserFiles/File/Flyer%204%202.pdf
http://www.cpaireland.ie/UserFiles/File/Sep%20Articles/Acc%20Plus%20Aut09_Fiona%20Hackett.pdf
Roger Brownlie, for Vistage
