email from Mercia corporation

email from Mercia corporation

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I have had the following email come through from the Mercia corporation. Are all members of ICAEW now disclosing directors dividends in the related party note, and also in the case of husband and wife companies, the dividends paid to the spouses.
I have picked up a file from a new client and the dividends paid to the director were disclosed, but not to his wife, who was a 20% shareholder. Seems to me to be a half-hearted attempt to follow the new guidelines.
The ACCA are as yet silent on this issue.

Update on disclosing dividends to directors

If you attended one of our 2007 / 2008 audit and accountancy courses you may recall that one of the earlier changes brought about by the company law reform process was the removal of the need to disclose directors' interests in the directors' report.

This change also started a debate on whether dividends paid to directors therefore now required specific disclosure in the financial statements as this information could 'no longer be worked out' through other disclosures. At the time we did not subscribe to this argument and did not feel that specific disclosure was needed as a result of this change. Our view has always been that disclosure in the directors' report cannot satisfy the requirement of an accounting standard and therefore changes to the disclosures therein cannot offset what is required within the accounts themselves.

It seems however that this view is not shared by others and in particular the QAD, who have confirmed that dividends to directors should now be disclosed under FRS 8 and that they will be looking for this in the financial statements that they review.

It would seem therefore that this disclosure should in fact have been made since FRS 8 was first issued in October 1995!

tony mahoney

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By thomas34
04th Jun 2009 09:11

Related Parties
Don't know the answer Tony and looks like nobody else does either - but it's surely worthy of discussion.

For my pennies' worth, I view the non-disclosure of directors' shareholdings in the directors' report per the CA2006 as a red herring - your view I think?

I've never disclosed these transactions and don't intend to at present. My excuse is a bit lame inasmuch as I look at intention of the related party transactions as primarily aimed at directors and not at shareholders.

It's pretty clear that there's no right or wrong answer and all we can do is to interpret the FRSs as best as we can. The fact that either the ICAEW or ACCA came to a conclusion one way or the other wouldn't influence me anyway.

Maybe you could add an accounting policy note to the effect that you don't consider shareholders to be related parties?

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