Making practical sense of your compliance obligations – Accountants

Making practical sense of your compliance obligations – Accountants

Every business in the world has to abide by rules set by one regulatory body or another. In the following two blogs we will specifically concentrate on the FRC (the Financial Reporting Council, the regulatory body for Accountants) and the SRA (the Solicitors Regulation authority, which is the regulatory body for Law Firms). We will delve deeper into some of the regulations and find out what you and your firm can do to guarantee that you are compliant 100% of the time.

 

In this blog we will specifically be concentrating on the FRC regulations for Accountants. The regulations around accounting were amended at the beginning of 2021 – with the UK leaving the European Union it is inevitable that changes will be enforced, and it is vital that you and your team ensure compliance no matter the circumstances. Due to this, some regulations that need to be adhered to have been handed over to the IFRS (International Financial Reporting Standards), resulting in some slight changes that you possibly aren’t familiar with.

 

The Regulations

The Financial Reporting Council and International Financial Reporting Standards expect firms to:

  1. ‘Have a Fair value measurement’.
  1. ‘Have principles around the recognition, measurement, presentation, and disclosure of leases’.

These are obviously just two very small parts of a much larger list of regulations that you – and everyone in your organisation – must adhere to.

 

The actions you can take

1.      ‘Have a Fair value measurement’

Let’s familiarise ourselves with what fair value is; Fair value is a market‑based measurement, not an entity‑specific measurement. For some assets and liabilities, observable market transactions or market information might be available, while observable market transactions and market information might not be available for other assets and liabilities. However, the objective of a fair value measurement in both cases is the same—to estimate the price at which an orderly transaction to sell the asset or to transfer the liability would take place between market participants at the measurement date under current market conditions (i.e. an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability).

 

When a price for an identical asset or liability is not observable, an entity measures fair value using another valuation technique that maximises the use of relevant observable inputs and minimises the use of unobservable inputs. Fair value is a market‑based measurement and is therefore measured using the assumptions that market participants would use when pricing the asset or liability, including assumptions about risk. As a result, an entity’s intention to hold an asset or to settle or fulfil a liability is not relevant when measuring fair value.

 

In this instance, the definition for fair value focuses solely on assets and liabilities because they are the primary subject of accounting measurement.

 

2.      ‘Have principles around the recognition, measurement, presentation, and disclosure of leases’

The thought process behind this regulation is to ensure that lessees and lessors provide relevant information in a manner that faithfully represents those transactions.

 

An entity shall consider the terms and conditions of contracts and all relevant facts and circumstances when applying this Standard. This Standard mut be applied consistently to contracts with similar characteristics and in similar circumstances. This is essential to ensure that the handling of leases or the way a lessor deals with any matter is appropriate and lawful.

 

Compliance made simple

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