The challenges of statutory accounts: key thoughts for 2023

The Christmas tree and decorations have been put away, the bells have tolled and a New Year has been rung in…

For most of us, it is back to business as usual, including those preparing statutory accounts, with the season’s starters being those with December 2022 year ends.

A New Year with Easter already on the horizon, but what is there anything you need to consider in preparing your statutory accounts?

After all, for those reporting under Financial Reporting Standard 102 (FRS 102) there have been no significant changes or amendments made to FRS 102, so what is there to talk about?

On the downside, the outlook for the economy in the UK is bleak with the highest rate of inflation experienced in the last 40 years, increasing interest rates and not forgetting the continued effect from COVID-19. Add into that falling real incomes and a tighter fiscal policy, the Bank of England expects the UK to enter into recession this year which some commentators believe may be shorter and less severe  than previously thought, having narrowly escaped falling into recession with the announcement of zero growth for the December 2022 quarter. That gives plenty of food for thought for everyone.

So, no changes to FRS 102, but with a vastly different economy since this time last year there are potential impacts preparers of statutory accounts under FRS 102 should be aware of.

Impairment of tangible and intangible assets:

Given the bleak outlook, there may be an indication that such assets could be impaired. If there are such indicators, this may require impairment reviews to be undertaken based on the conditions existing at the balance sheet date.

The impairment review calculations, the assumptions, and inputs into the model will need to be supportable, including inflation and the appropriate discount rate. Disclosures are also required in the statutory accounts concerning the events and circumstances leading to the recognition of an impairment loss.

Impairment of stocks:

At the balance sheet date there needs to be an assessment as to whether stocks are impaired, including damage, obsolescence or declining selling prices. If the selling price of stock, less costs to complete and sell are lower than its carrying value, then stock is impaired.

The most reliable information available is needed to make this assessment, including any subsequent to the balance sheet date if they provide evidence of conditions existing at the balance sheet date. Again, disclosures are required.

Recoverability of trade debts:

The exposure to bad debts will vary from company to company and be largely dependent on the industry they operate in.

The cost of living crisis being experienced in the UK will have relevance for some companies more than others. Again, in making an assessment on recoverability, reliable information and evidence subsequent to the balance sheet date, as set out above, will need to be considered.

Going concern:

Forecasts will need to include the impact of the current position and be reviewed and updated regularly. Reporters are required to include a statement on going concern and this needs to be relevant to their situation, disclosing any material uncertainties relating to going concern.

Recognition of deferred tax assets:

An entity may have experienced significant tax losses due to the economic uncertainty. To be able to recognise a deferred tax asset for those tax losses will require consideration of future sustainable tax profits. Where an asset is recognised, an explanation is most likely to be required in the statutory accounts.

Government grants:

The Energy Bill Relief Scheme (EBRS) was announced in September 2022 and comes to an end in March 2023. It provides energy bill relief for eligible non-domestic customers in Great Britain and Northern Ireland.

For those making use of EBRS, an accounting policy and related disclosures will be required.

As an aside, EBRS is replaced by the Energy Bills Discount Scheme (EBDS). EBDS applies from April 2023 to April 2024 for eligible non-domestic consumers in Great Britain and Northern Ireland.

Narrative reporting:

If the above is not enough, then there are the front-end narrative reports that need to be considered.

Do these need further detail and explanation as a result of the uncertain outlook? At a minimum, this impacts on the disclosure of risks and uncertainties in the narrative reports – not commenting would appear to be somewhat of an omission.

So, whilst there have been no significant changes or amendments to FRS 102, 2023 still brings challenges for those preparing statutory accounts.

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