Even the most extensive millennium programme cannot leave a companying. 100% certain that every year-2000 problem has been resolved.
Chemical company Blagden has no time for uncertainties – it is engaging in a major project to ensure that by the end of 1998, all its systems will be millennium-compliant.
Such confidence may be misplaced. The US Securities and Exchange Commission believes it is not realistic for companies to state that compliance has been achieved. Electricity company Viridian agrees, but stresses it hopes to achieve an acceptable level of readiness, with contingency plans to deal with unforeseen failures or problems.
Early adopters of FRS9 and 10.
As yet, there are no accounts that fall within the effective dates of either FRS9: ‘Associates and Joint Ventures’ or FRS10: ‘Goodwill and Intangible Assets’, but some companies have chosen to adopt their requirements early, encouraged by the Accounting Standards Board. This month, Fortune Oil and Safeway adopt early FRS9 (the less controversial of the two), while only oil recycler Greenway adopts early FRS10.
Fortune Oil has reclassified associates as joint ventures, and accounts for them using the ‘gross equity’ method outlined in FRS9. The company’s share of joint-venture turnover is shown separately on the face of the profit and loss account and its share of joint-venture net assets is divided on the balance sheet into its component assets and liabilities.
Taking a different approach, Safeway discloses this information in the notes to the accounts as the amounts involved are not substantial enough to warrant inclusion on the face of the primary statements.
Although Greenway is the only company to state FRS10 adoption, both Safeway and manufacturer Wellington have disclosed how they intend to implement its transitional arrangements. Neither company intends to reinstate as an asset any goodwill written off previously to reserves.
Wellington’s directors are giving some consideration to the FRS10 requirement that any goodwill remaining in reserves should not be shown as a separate reserve, but offset instead against p&l reserve or ‘another appropriate reserve’.
Following criticism that companies do not provide sufficient details on non-financial information, Body Shop reminds us that there are exceptions to every rule.
A section of Body Shop’s annual report and accounts relates to equal opportunities, employee turnover and occupational health and safety. The report discloses that 44% of employees in top salary bands are female, annual employee turnover remains static at 23%, and UK reportable accidents rise to 1,121 per 100,000 employees (against an industry standard of 1,870).
Only 4% of companies have used merger accounting in the last year, which is hardly surprising given that FRS6: ‘Acquisitions and Mergers’ lays down strict criteria that must be met before it can be used. But both Sainsbury and Viridian are using merger accounting this month despite failing to meet the FRS6 criteria.
Sainsbury has transferred its UK supermarket business from the parent company to a wholly-owned subsidiary. The company considers this transaction to be a group reconstruction, even though it does not meet the FRS6 definition and, for the accounts of the parent, uses merger accounting accordingly.
A group reconstruction at Viridian has failed to meet both the FRS6 and Companies Act 1985 criteria for use of merger accounting, as the nominal value of equity shares issued make up less than 90% of the total consideration. The company, however, believes that, since shareholders have a continuing interest in the companies, acquisition accounting is not appropriate.
SSAP18: ‘Accounting for Contingencies’ requires that companies estimate the outcome and financial effect of contingencies existing at the balance sheet date. Unfortunately, this is not always a simple task.
Shire Pharmaceuticals is involved in a lawsuit regarding obesity drugs that may lead to compensatory and punitive damages. Several factors make it impossible to estimate the result of the lawsuit, or the likely level of damages awarded. In the face of such difficulties, an extensive note to the accounts is used to keep analysts informed of the situation.
A great deal of focus (perhaps too much) is placed on earnings per share, so some companies are keen to publish additional EPS figures that give an enhanced view of underlying performance.
This month, Wellington and publisher Dialog provide additional EPS calculations.
In order to achieve an underlying performance measure, items such as restructuring costs, windfall tax and exceptional provisions have been removed from the basic FRS3: ‘Reporting financial performance calculations’. Predictably, all of the companies end up publishing alternative calculations higher than the FRS3 EPS – in some cases substantially so.
Although only 10% of companies have evidence of joint ventures at present, the definitions given in the new regime outlined in FRS9 are prompting some to reclassify their associates as joint ventures.
Companies are adopting the ‘gross equity’ method, despite grumblings about their share of joint-venture profits being included after group operating profit. In response to criticism of FRED 11: ‘Associates and joint ventures’ from those industries which make common use of proportional consolidation, FRS9 introduced a method of direct accounting to tackle what it defines as ‘joint arrangements that are not entities’. In effect, this allows those industries concerned to continue using proportional consolidation, but within the constraints of a logical, coherent framework.
This is an edited version of the review published in Company Reporting, a monthly publication monitoring financial reporting practices in the UK. Company Reporting is available on subscription. Details from 0131 558 1400.
Crowe Clark Whitehill , the top 20 accountancy firm, has announced the promotion of Chris Mould to partner
The latest opinions from Accountancy Age on Making Tax Digital, and outline plans to evolve the UK's corporate governance regime
Five million taxpayers are ow using digital personal tax accounts (PTA) as part of the making tax digital strategy, HMRC said
UK-based non-doms have paid ten times more tax than the average taxpayer, raising concerns over the Brexit impact on non-dom contributions and therefore, the economy