With Thanksgiving and Christmas around the corner, now is a good time for company owners and directors to start preparing to file accounts, helping you avoid delays or fines. Although this not designed to be an exhaustive checklist, it should help you identify the areas to focus on in the lead up to the end of December.
New financial reporting related requirements
2019 saw some significant changes with revised standards impacting both UK GAAP and IFRS which have different scoping requirements, so it’s important to ensure your financial reporting is aligned with the relevant requirements.
1. Have you considered your audit requirements?
Your audit requirement is driven by thresholds in relation to global revenue, total assets and headcount over the year – not just your UK subsidiary. It’s therefore important to understand whether you need an audit. Read our ‘Do I Need an Audit?’ Info Sheet to establish whether this is the case.
2. If you had an audit last year, have you posted any adjusting entries arising from it?
One of the first areas your auditors or accountants will address is the opening reserves position. If adjusting entries arose as part of your previous year end work, then you will need to ensure all entries have been captured in the correct period.
3. Have you considered any reporting standard divergences?
With significant changes to US GAAP in the last couple of years (namely ASC 606 and 842), and changes to UK GAAP and FRS 102 in the UK, your group accounting may be materially different to your local accounting. Identifying and addressing this early will help ensure a smooth audit process. It may also lead you to consider the most appropriate UK reporting standards for your business.
4. Have you documented management’s assessment of the application of the going concern assumption?
A particularly hot topic in the audit industry is going concern and management’s assessment of the future of the business. Documenting the processes, evidence and conclusions of management will ensure the auditors have the audit evidence they require and, whilst there will be some follow up questions, considering this now will make the process smoother.
5. Have you documented management’s assessment of key estimates or judgements?
A recent update to the International Standards for Auditing (540) in relation to accounting estimates requires significantly more work be performed by auditors on this topic. Ensuring management document their assessment of their estimates and judgements will help with the process. The most common example of this could be impairment of stock or investments or depreciation/amortisation of fixed assets.
6. Have you documented management’s consideration of the impact of COVID-19?
With the economy and businesses worldwide being impacted by COVID-19, this is likely to be identified as a risk area by your auditors. Preparing a summary of management’s assessment of the impact on your businesses is likely to be a time saver during the audit process.
7. Have you documented management’s consideration of the impact of Brexit?
With the implications of Brexit for businesses operating in the UK and Europe providing a source of uncertainty, providing your auditors with management’s assessment of the potential implications on the business is likely to help with the risk assessment procedures and open a dialogue with your engagement team. This is likely to be higher risk for some businesses (particularly those selling goods) than for others. Companies will certainly need to provide more detailed disclosures in their annual reports, and while the uncertainty of the outcome continues, this may mean exploring different scenarios.
Making the time now to prepare for your year end financial reporting is an important step on the path to a straightforward process. If after reading the above there are any areas where you think you could benefit from some support, then get in touch to discuss your specific circumstances.