How Are Changes to Accounting Reporting Standards Impacting Farm Accounts?
FRS102 and FRS105 are the financial reporting standards that set out how accounts should be prepared for UK entities and micro-entities. The standards, which became effective for financial year-ends on or after 1 January 2016 (1 January 2015 for medium-sized companies) are mandatory for all farming businesses trading as a limited company and are therefore submitting annual accounts to Companies House.
The Institute of Chartered Accountants in England and Wales (ICAEW) Farming Community recently released the results of a survey it conducted amongst members which looked at the effect the adoption of FRS102 and FRS105 has had on farm accounts.
Some of the key findings are:
- Few were accruing for holiday pay (and showing it as a liability on the balance sheet) as specified by the new standards.
- 60% of those surveyed were recognising BPS money (for year-ends between mid-May and December) when it was received, rather than accruing for it over the accounting period. Under FRS102 government grants cannot be recognised in the accounts until there is reasonable assurance that they will be received. As such, BPS should not be recognised in the accounts until the conditions of the grant have been fully satisfied.
Only 15% of respondents were still accounting for the herd by showing it at tax value in the accounts, which is not permitted under the new standard. FRS102 states that herd animals are biological assets and their value must be shown on the balance sheet at either historic cost or fair value (which is likely to represent market value less costs to sell).
Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.