6 Sep 2019 09:27am

Practice Q&A: micro-company standards

We take a look at your questions on the proper procedure for outgoing accountants and assessing the appropriate standard for micro-companies. ICAEW’s David Lyford-Smith also shares his monthly Excel tip

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Caption: Illustration By Yukai Du

Do I have to give clearance to a new accountant if my client has not paid my fees?

It is worth noting that the use of the word “clearance” is a misnomer as, despite being your client’s existing accountant, you don’t have the authority to give or withhold clearance or permission for another accountant to act. The decision whether or not to accept the appointment is the responsibility of the incoming accountant. The incoming accountant should seek to contact you – this is usually referred to as a ‘professional enquiry’ and the process is outlined in the appendix to s210 of the ICAEW Code of Ethics.

When you receive a professional enquiry letter from an incoming accountant, you’ll normally be asked to disclose any issue or circumstance which might be relevant to the incoming accountant’s decision to accept or decline the appointment as well as provide various information, documents and records as part of the handover. Once you have obtained the consent of your client to respond, you must answer promptly (even if there are outstanding fees) and should disclose details of any issues or circumstances you need to bring to the incoming accountant’s attention.

You are, however, entitled to raise the matter of outstanding fees in your response. You must also deal promptly with any reasonable request for the transfer of records although in certain, very specific, circumstances it may be possible to exercise the right of particular lien (ie to hold onto the client’s documents) if your fees are outstanding.

Chris Turner, professional consultant, ICAEW Advisory Services

My client is a micro-company but has been using FRS 102 1A. Can they change to FRS 105?

The first thing to check is that your client does actually qualify as a micro-entity (s384A of the Companies Act 2006) and is not excluded from the micro-entities regime (s384B). Members may wish to refer to the Is a company micro? helpsheet for more information: If the company does qualify, the directors should consider anything else that might prevent the company adopting FRS 105, such as provisions within its articles, agreements with lenders or the requirements of any regulators.

They should also think about the information needs of all users and the potential impact on credit ratings as a result of less financial information being publically available. The choice is ultimately that of the directors, not that of the accountancy firm. When a company does transition to FRS 105, it must fully retrospectively apply the standard, subject to the transitional provisions set out in Section 28. This will include (but is not limited to) stripping out the effect of deferred tax, as it is not recognised under FRS 105, as well as any revaluations of property, plant and equipment, and fair value movements in investment property.

Chris Turner, professional consultant, ICAEW Advisory Services

Excel top tip: When formulas go wrong

It’s not uncommon to write a formula in Excel simply for it all to go wrong. What are some of the common causes? If your cell just shows the formula you typed instead of calculating, your cell is probably formatted as Text. Change to General and re-enter the formula to sort it out. Text formatting can also cause issues when numeric data is stored as text – functions like SUM will ignore these values. Do the values seems weird or out of date? Watch out for the ‘manual calculation’ option under the Formulas ribbon. This setting means that formulas are only updated when you press F9 to recalculate unless you revert to Automatic. Circular references, which happen when a formula tries to use its own value, can cause issues. Use Error Checking on the Formulas ribbon to identify these cells and rewrite as needed.

Rogue spaces can often throw off formulas that are looking for matching names – watch out for data that’s been entered with a space on the end. The TRIM function can clean these up for you. If your formula is returning the wrong value, try checking that all the ranges have been entered correctly by entering the formula cell and inspecting the highlighted ranges. Any repeated ranges should be the same colour in the formula bar

Five in brief

1) IFRS 16
New leasing standard IFRS 16 applies to periods beginning on or after 1 January 2019. It prescribes a single lessee accounting model that recognises asset and corresponding liability for all leases with terms over 12 months unless the underlying asset is of low value

2) New prospectus regulation
The new EU Prospectus Regulation came into full effect on 21 July 2019. The Financial Conduct Authority has issued new rules for any issuer seeking approval of a draft prospectus on or after that date. The draft will not be valid if prepared to the previous regime.

3) Non-financial reporting directive
The European Commission has issued non-binding guidelines to help companies and financial institutions better assess the risks of their business activities negatively affecting impact on the climate, as well as the risks that climate change poses on their business.

4) Payment practices reporting
The government says it will use its enforcement powers to prosecute and fine large companies which have not yet reported on their payment practices or have reported data incorrectly

5) Regulatory accounts
ICAEW has updated Tech 02/16 to cover revisions to the report on the regulatory accounts to align with International Standards on Auditing (UK). The guidance aims to promote consistency in practices adopted on regulatory reporting by independent accountants.