Mind the GAAP: Start collecting data nowby
Companies need to start preparing their accounts now for the biggest change to financial reporting rules in a generation, the ICAEW has said.
From 2015, the majority of medium-sized and large privately owned UK companies will have to prepare their financial report according to UK Generally Accepted Accounting Principles (GAAP).
The new UK GAAP will be applicable to the majority of medium and large privately owned UK companies. The new reporting rules are based on international standards and will change the “look and feel of company”, according to the Institute.
Nigel Sleigh-Johnson, head of the ICAEW’s financial reporting faculty, said: “The transition to the new reporting standards is perhaps the greatest accounting change non-listed UK companies have faced for about 40 years.
“Preparing the move to the new regime may require considerable time and resource. It is therefore critical that companies start thinking about it now if they haven’t already. Failing to do so could mean more pain and less gain when they change-over to the new rules.”
Companies will be required to provide comparative information when preparing their first financial statements under the new regime. As some of the required information will be much easier to obtain at the time the relevant activity takes place, companies are urged to collect such data and information as they go along during 2014.
The biggest change some companies will face is to how they account for financial instruments, Sleigh-Johnson said.
For the first time, certain investments and derivative contracts will have to be reported at fair value. While it is usually possible to obtain the fair values at a later date, it will require more effort and research than capturing the valuation when the transactions happen.
Eddy James, technical manager at the ICAEW, told AccountingWEB that some finance departments may not have the skills or experience to calculate a market price for things such as financial hedging products which protect companies against changes in currency prices.
That may mean companies have to pay banks or other third parties to help with preparing for the new rules. “Little costs like things like this can add up,” James said.
The ICAEW said the move to the new accounting regime is about much more than just financial reporting.
“It is important to establish the extent to which each company will be affected. The transition may require additional training of staff, systems updates and new software. It may also affect bank covenants, and bonus and tax payments, which means there should be early communication with staff, lenders and investors,” commented Nigel.