Share this content
10

definition of "shareholder funds " and " net asset

is there a definition somewhere of these?

Didn't find your answer?

Hi Guys,

Sorry for the vagueness perhaps of this question, I know, or at least I thought I knew, how one arrived at a figure for shareholder funds / net assets.

I am having an argument with a client whose limited company's accounts were in the red by quite a bit at the last year end, and I know that the current position is the same, they are in the red. However, during the year the client, themselves, made an application for a government contract, and they clearly stated on the application that they were in the black, and quoted a figure. 

The application form asked, that if the shareholders funds / net assets were negative, what assurances were available on the future solvency of the business. The client has stated in the application that some loans had been waived, but more importantly that future fuunding will be available though "advances" as per a letter from a strategic funding partner. These advances have been included in the grant application as part of shareholders funds / net assets.

My question is: Is there an accounting definition somewhere in GAAP, FRS's  SSAP'sor somehwre else that states what can or can not be included in Shareholder funds / net assets. Unfortunately, all that I have is a copy of the apllication form showing one figure for Shareholder funds, which includes the rather subsatantial "advance".

Any ideas, or if you can point me to a recognised accounting definition.

Thanks

  

 

Replies (10)

Please login or register to join the discussion.

avatar
By Paul Crowley
10th Oct 2020 12:28

SAR required

Thanks (0)
Replying to Paul Crowley:
avatar
By frankie3
10th Oct 2020 14:29

Paul,
I take your point about SAR, Suspicious Activity Report, I would have thought the grant authority would have done due diligence, MLR etc. Maybe the funders letter is quite legitimate.

Is there an accounting definition somewhere in GAAP, FRS's SSAP's or somewhere else that states what can or can not be included in Shareholder funds / net assets. Unfortunately, all that I have is a copy of the application form showing one figure for Shareholder funds, which includes the rather substantial "advance".

Any ideas, or if you can point me to a recognised accounting definition.

Thanks

Thanks (0)
Replying to frankie3:
avatar
By Paul Crowley
10th Oct 2020 14:57

The application is clearly fraudulent.
You know is is fraudulent
You know this in your professional capacity

Thanks (0)
David Winch
By David Winch
10th Oct 2020 15:17

I have to say that I don't know the application was fraudulent. It seems to me that the client may have believed that he was making full and proper disclosure of the 'advances' on the application. If that is the case he has not been dishonest. If he has not been dishonest there is no fraud, and no requirement for a Suspicious Activity Report.
Whether the OP would have completed the application form in the same way is not the issue (and frankly the point raised by the OP, of whether there is an 'official' definition of shareholders' funds, is irrelevant to the real issue in relation to a SAR which is 'What did the client believe when he completed the application form?')
David

Thanks (1)
avatar
By frankie3
10th Oct 2020 15:35

Thanks Paul and David,

So to clarify that it was the client that completed the grant application. I have only come across a copy of the application in papers when working on current year figures. Unless the client had assurances available surrounding the future solvency of the business, the application would not have been successful.

I take it from from you both have said that if you, and indeed if I, had been asked to complete the application form, the shareholders funds / net assets would have been shown as a negative figure as per the previous accounts, and as there would have been no evidence that the asset base of the company had improved sufficiently to merit providing a plus net asset figure.

In round figures, the previous accounts showed that the company was in the red by £ 3 million, the application form showed that at the time of the application that the net assets were in the black by 200k, and at the next year end, some 3 months after the application, the assets were in the red to the tune of approx £ 4 million, so in effect the letter of "advance " that had been provided was for circa £ 4 million.

But the problem is, if there is a problem, is that the client has stated in the application that net assets were in the black, by virtue of being able to show a letter of "advance".

David, is there an accounting definition out there of what should be included in Shareholder funds / net assets?

Many Thanks

Thanks (0)
Replying to frankie3:
avatar
By WhichTyler
10th Oct 2020 21:36

I hope you know how to calculate net assets. Shareholders funds balances that

Thanks (0)
avatar
By frankfx
10th Oct 2020 15:52

,,"amount of equity in a company, which *belongs *to the shareholders.

The amount of shareholders' funds yields an approximation of theoretically how much the *shareholders * would. * receive *if a business were to liquidate."

Auditors go out of their way, at great cost to shareholders, that SH ££__ are not contrived or misleading.

An advance is clearly is not shareholder money. Stake Equity

Thanks (0)
avatar
By Paul Crowley
13th Oct 2020 19:57

It is clear from what you say that without £4M extra 'equity' the company would not get the contract. It looks like directors deliberately misunderstood, if that is what they are claiming
GET cleared funds up front for your fee.
Do not bother doing any work until you see the client getting the 'advance' and see exactly what the funders are providing
No loan, but brand new shares?
believe it when you see it
And confirm it is genuine

Thanks (0)
avatar
By Paul Crowley
10th Oct 2020 16:45

Start filling in the AML documents
when it gets to the question: Why did client appoint you, consider your answer VERY carefully

An insolvent company, £4m insolvent, that made an application that is clearly wrong and is definitely going to be discovered at a later date.(Accounts are on Co house for ever)

What exactly are you being requested to do?

Glad it is you not me

They tied you in when they deliberately let you have the application

Thanks (0)
avatar
By paulwakefield1
12th Oct 2020 09:29

In answer to the specific question, see Section 22 of FRS102 although I fear it will be little help in the particular circumstances here.

Thanks (0)
Share this content

Related posts