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IFRS 15 and IFRS 16 were both published several years ago, but with effective dates way into the future – for that reason, many accountants and FDs have a vague inkling that they are out there, and that they might be important, but have been putting off getting to grips with the details. Well, now it really is time to stop putting it off – these new standards are important and they are effective – now!
But these standards only affect listed companies though, right? Not necessarily – increasing numbers of privately owned UK companies are reporting using IFRS for a variety of reasons, and many more are adopting FRS101 which is a core UK accounting standard but based on IFRS principles. If in doubt, read on and seek advice.
IFRS 15 deals with how (and most particularly when) businesses account for revenue – pretty fundamental stuff. The content seems quite technical at first reading and you may think it won’t actually affect your business – that may well be true of course – but for many businesses it is having a significant impact on how much revenue they can recognise, and when, with obvious knock on impacts on profits, tax, debt covenants and company valuations. If you have a December year-end this is hitting your reporting right now – for companies with other year-ends you’ve already adopted – haven’t you?!
IFRS 16 deals with leases and is arguably the most fundamental change to accounting principles in a generation. In essence, adoption of IFRS 16 puts all leases on the balance sheet. But what does this mean in practice? Well, for example, that 20 year property lease you just signed up to – that is now debt on your company’s balance sheet! So, again, pretty fundamental stuff – and effective this year.
There is plenty of guidance out there. Our advice is simple – find out if these new standards affect your business and if they do, act now to understand the impact and how to implement the changes – and ask for help sooner rather than later.
Will these changes filter down to UK accounting standards? Well, as explained above, if you follow FRS101 they already have. For mainstream UK accounting standards – the jury is out – at this stage the standard setters have given no indication either way, but there has been a general trend of harmonising UK and International Standards, and the UK’s core accounting standard (FRS102) is due its first major review and refresh, soon.
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