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Residential management company rules issued as UITF goes

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30th Jul 2012
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In one of its final acts, the Urgent Issues Taskforce (UITF) issued new guidance on financial reporting for residential management companies.

The guidance contained in UITF abstract 92 should be adopted for financial periods ending after 31 December 2012, includes help on:

  • How residential management companies can determine whether they are acting as principal or agent when undertaking residential service transactions with third parties, and thereby determine which transactions should be recognised in their financial statements;
  • Focus on and protect the needs of users of RMC financial statements (including tenants); and
  • Assist preparers in fulfilling their statutory duties.

The dearth of definitive guidance for preparing residential management companies accounts has exercised AccountingWEB members operating in this sector for some time and the UITF provoked a swift response in Any Answers, where members debated whether the UITF had lost its way on the topic.

In a subsequent post, Dreamcatcher wanted to clarify the situation for a management company with a year end of 30 June, but a freehold lease requiring service charge accounts to be prepared to 31 March.

“Following the UITF I understand that the RMCo is acting as principal and therefore the statutory accounts should include only the ground rent received and corporation tax thereon. Service charges and associated expenditure need to be included in the service charge accounts to the date specified in the lease, ie 31 March,” dreamcatcher said.

Since ground rents and service charges are both collected via one bank account, “I therefore assume that in the statutory accounts there needs to be net debtor to the service charge accounts until the ground rents are collected.”

Paul Scholes said he would treat the bank account balance relating to service charges as outside the company’s books.

Euan MacLennan said that although the new guidance on residential management companies was a “welcome improvement” on previous guidance it still “continues the underlying belief that the service charges are trust funds on which the RMC can draw to pay the communal expenses, but cannot include in its balance sheet”.

MacLennan added that is it “daft” that the only things excluded from the statutory accounts of the RMC will be the bank balance and the accumulated surplus/deficit.

Given the problems the issue has caused in the past, and continuing niggles about the detailed guidance, the UITF has extended the consultation date until 31 July, according to the ICAEW Financial Reporting Faculty.

However, the project could be further disrupted by the latest changes at the Financial Reporting Council, which saw the UITF disbanded on 2 July and its activities switched to a the Accounting Council, which has replaced the Accounting Standards Board, but remains part of the FRC.

The reorganisation is designed to make the FRC a unified regulatory body that has more independence from those it regulates, and a more proportionate range of sanctions. The FRC board is now supported by committees overseeing codes and standards, professional conduct and executive functions. It will also be advised by three councils focusing on accounting, actuarial and audit/assurance matters.

The Accounting Council’s remit includes helping the FRC to resolve unsatisfactory or conflicting interpretations within accounting standards and Companies Acts, and would retain the UITF’s consensus approach to fit with the FRCs aim to rely on principles rather than detailed prescription.

While the residential management company consultation continues, interested parties are advised to send their comments to project director Jennifer Guest via [email protected]

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By leon0001
31st Jul 2012 13:04

Abstract 92 - UITF parting shot

The abstract is worse than useless. It does not provide clear guidance for use in the vast majority of such cases where the freehold is owned by the RMC and the lessees are usually but not always the members.

The statutory trust is a bit of a red herring - who is the alleged beneficial owner of the money paid on account of future expenditure, the person who pays it in or a subsequent lessee after the flat is sold? Did ICAEW's counsel give any guidance on this? Was he or she asked?

How many of these companies only handle expenditure of less than £1,000 per annum?

I think that the ICAEW TR and this abstract should be immediately withdrawn and the matter looked at from scratch, preferably seconding some accountants who have extensive experience of dealing with small RMC's.

I hope I am not being too uncharitable when I say it appears that the UITF were suffering from end of term syndrome or just demob happy when they issued this vague tosh.

Thanks (1)
Teignmouth
By Paul Scholes
31st Jul 2012 13:32

Least worst solution

Given the confusion & conflicts in this topic over the past couple of decades I think this shaves off some rough edges and provides a bit of clarity as far as the RMC is concerned.

Where I feel it may fall down is in giving the impression that by including the expenditure and corresponding income (thus leaving a breakeven) in the P&L the RMC accounts provide the full information leaseholders might expect, or be entitled to, in the handling of the service charge funds.  In other words that there is now no need to prepare service charge accounts or top-up information.

I agree with others that such information can be incorporated as a note or appendix to the company's accounts, hopefully for the same year end.

 

EDIT: Leon, I hope you've taken advantage of the extended consultation period.  This was never about a complete solution, like it or not the L&T Act from 25 years ago has created a trust for all leasees, both current & future and this has, in some people's minds created a conflict with the accounting in the RMC itself a separate legal entity, which must prepare its own accounts.  So the abstract is just trying to bring some clarity over what, if anything, to include in the company's accounts.

 

Thanks (1)
Teignmouth
By Paul Scholes
31st Jul 2012 14:59

email link refused

John - the email link at the end of the article has just been refused as invalid?

EDIT:  Whoops sorry, refused my end not theirs!

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By leon0001
31st Jul 2012 14:30

Least worst, I don't think so.

Better that they just left well alone. No guidance at all is better than confusing, scattered time confusing "guidance".

And yes, I have submitted my comment to Ms Guest.

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By uktaxpal
02nd Aug 2012 22:17

John?Does this article fall into the category of taking credit for somebody elses work without giving credit.Original article https://www.accountingweb.co.uk/anyanswers/question/have-uitf-lost-their-way-rmc-accounts

@Leon0001 This is the most common sense article ive seen.

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