Impostos Sobre Contabilidade E Impostos De Opções De Estoque

Contabilidade Fiscal O que é Contabilidade Fiscal A contabilidade tributária consiste em métodos contábeis que se concentram em impostos, em vez de aparência de demonstrações financeiras públicas. A contabilidade fiscal é regida pelo Código da Receita Federal que determina as regras específicas que as empresas e os indivíduos devem seguir ao preparar suas declarações fiscais. Os princípios fiscais geralmente diferem dos princípios contábeis geralmente aceitos. BREAKING Down Contabilidade tributária O objetivo da contabilidade é rastrear recursos associados a um indivíduo ou empresa. Os itens do balanço patrimonial podem ser contabilizados de forma diferente ao preparar demonstrações financeiras e contas a pagar. Por exemplo, as empresas podem preparar suas demonstrações financeiras implementando o método first-in-first-out (FIFO) para registrar seu inventário para fins financeiros, mas eles podem implementar a abordagem do último-em-primeiro-out (LIFO) para fins fiscais. Este último procedimento reduz os impostos vigentes a pagar. Embora a contabilidade abranja todas as transações financeiras até certo ponto, a contabilização de impostos se concentra unicamente nas transações que afetam a carga tributária de uma entidade e como esses itens se relacionam com cálculos fiscais adequados e preparação de documentos tributários. A contabilidade tributária é regulada pelo Internal Revenue Service (IRS) para garantir que todas as leis tributárias associadas sejam aderidas pelos profissionais da contabilidade tributária e pelos contribuintes individuais. O IRS também exige o uso de documentos e formulários específicos para enviar adequadamente as informações fiscais conforme exigido por lei. Contabilidade tributária para um indivíduo Do senso do contribuinte, a contabilidade envolveria o rastreamento de todos os fundos que entram e saem da posse das pessoas independentemente da finalidade, incluindo despesas pessoais que não têm implicações fiscais. A contabilidade tributária concentra-se exclusivamente em itens como renda, deduções qualificadas. Ganhos ou perdas de investimentos e outras transações que afetam a carga tributária individual. Isso limita a quantidade de informações necessária para que um indivíduo gerencie uma declaração de imposto anual e, enquanto um contador fiscal pode ser usado por um indivíduo, não é um requisito legal. Contabilidade Fiscal para um Negócio De uma perspectiva comercial, mais informações devem ser analisadas como parte do processo contábil tributário. Enquanto os ganhos da empresa. Ou fundos recebidos, devem ser rastreados exatamente como são para o indivíduo, há um nível adicional de complexidade em relação a quaisquer fundos de saída direcionados para determinadas obrigações comerciais. Isso pode incluir fundos direcionados para despesas comerciais específicas, bem como recursos direcionados aos acionistas. Embora também não seja exigido que uma empresa use um contador fiscal para desempenhar essas funções, é bastante comum em organizações maiores devido à complexidade dos registros envolvidos. Contabilidade tributária para uma organização isenta de impostos Mesmo nos casos em que uma organização está isenta de impostos, a contabilidade fiscal é necessária. Isto é devido ao fato de que todas as organizações devem apresentar retornos anuais. Eles devem fornecer informações sobre quaisquer fundos recebidos, como bolsas ou doações, bem como a forma como os fundos são utilizados durante a operação das organizações. Isso ajuda a garantir que a organização adira a todas as leis e regulamentos que regem o funcionamento adequado de uma entidade isenta de impostos. Documento de síntese do FRS 102 - Impostos sobre a tributação corporativa Introdução O objetivo deste trabalho geral (a seguir o documento) é ajudar as empresas que estão pensando De escolher ou já optou por aplicar a FRS 102. Em particular, fornece uma visão geral das principais mudanças contábeis e as principais considerações fiscais que surgem para as empresas que transicionam do UK UK GAAP 1 para a FRS 102. O documento é igualmente relevante para Pequenas empresas que optam por aplicar a Seção 1A da FRS 102. A Seção 1A prevê certas modificações aos requisitos completos para pequenas empresas e, em particular, proporciona requisitos reduzidos de divulgação e apresentação. Para comentários de facilidade de referência neste artigo, que se refere à FRS 102, também se aplicará às empresas que aplicam a Seção 1A da FRS 102, salvo indicação em contrário nessa seção do documento. A seção principal deste artigo é dividida em 2 partes: a Parte A deste artigo fornece uma comparação das diferenças contábeis e tributárias que surgem entre o UK UK GAAP e o FRS 102 Parte B deste artigo fornece um resumo das principais considerações contábeis e tributárias Que surgem na transição dos antigos padrões contábeis do Reino Unido para o FRS 102 O documento concentra-se na posição de imposto sobre sociedades. Também pode auxiliar indivíduos (e outras entidades) que estão dentro do custo do imposto sobre o rendimento, já que muitas das questões contábeis e tributárias serão semelhantes. No entanto, existem diferenças significativas entre os 2 regimes fiscais que não estão refletidos neste artigo. Em particular, existem regras específicas para relações de empréstimos, contratos de derivativos e imobilizações intangíveis que só se aplicam para fins do imposto sobre as sociedades. Para as empresas que se transpõem de GAAP do Reino Unido antigo para o FRS 101, um documento separado que fornece uma visão geral das principais considerações contábeis e tributárias está disponível. Este artigo reflete o pensamento atual da HM Revenue and Customs (HMRC) e é baseado na lei como está em vigor na data de publicação. A intenção é que este documento seja atualizado à medida que mais informações estiverem disponíveis e à medida que novos padrões contábeis e legislação fiscal se desenvolvam. O comentário fornecido no documento é de natureza geral. As empresas não devem confiar no comentário de forma isolada e não pretende substituir a referência às normas contábeis e à legislação tributária. Alterar a base sobre as quais as contas são preparadas é uma área complexa e as empresas podem querer considerar discutir as implicações da transição com seus consultores e ou consultar a orientação detalhada nos manuais do HMRC. Continua a ser da responsabilidade da entidade ou do indivíduo assegurar que prepara contas de acordo com os GAAP relevantes e submete uma auto avaliação de acordo com a legislação tributária do Reino Unido. Note-se que, quando o HMRC considera que existe, ou que pode ter ocorrido, a evasão de impostos, a análise apresentada não se aplicará necessariamente. Versão atualizada Este artigo é uma atualização de artigos anteriores publicados em janeiro de 2014 e outubro de 2015. As principais alterações do documento original são: comentários adicionais em relação a empréstimos sem juros atualizados comentários sobre a aplicação dos Regulamentos de Desrespeito e Mudança de Regulamento de Práticas Contábeis, refletindo as alterações feitas a esses instrumentos estatutários em dezembro de 2014, comentários contábeis atualizados para refletir as emendas à FRS 102 emitidas em agosto de 2014 e julho de 2015, quando aplicável, foram atualizadas para qualquer comentário específico da seção 1A da FRS 102. Reflete: emendas às obrigações de pensão da FRS 102 (fevereiro de 2015) O relatório financeiro interino da FRS 104 propôs alterações às regras fiscais, por exemplo, mudanças na relação de empréstimo e nas regras do contrato de derivativos e mudanças na legislação intangível incluída na Lei Financeira (nº 2) 2015 Antecedentes Resumo das alterações aos padrões contábeis Existe atualmente um conjunto de Padrões de contabilidade no Reino Unido. Sob reserva de determinadas restrições detalhadas nas próprias normas, as empresas podem escolher ou podem ser obrigadas a preparar suas contas ao abrigo de uma das seguintes opções: IFRS IAS aprovado pela UE. Essas contas preparadas de acordo com as Normas Internacionais de Contabilidade, na acepção do artigo 393 da Lei das Sociedades Comerciais - a seguir, a IAS, para os fins deste artigo, novos US GAAP. FRS 100, FRS 101 e FRS 102. As entidades que aplicam o novo UK GAAP, no âmbito da FRS 100, aplicam uma das seguintes opções: O FRS 101 é efetivamente os requisitos de reconhecimento e medição do IAS, sujeito a alguns ajustes para garantir o alinhamento com as empresas do Reino Unido Ato e também requisitos de divulgação reduzidos O FRS 102 é um novo conjunto de requisitos contábeis que estão intimamente alinhados, mas são os mesmos que a IFRS Seção 1A da FRS 102, disponível para pequenas empresas, está alinhada à FRS 102, mas com divulgação e apresentação reduzidas Os requisitos FRS 105 baseiam-se nos requisitos de reconhecimento e medição da FRS102, com algumas simplificações contábeis e divulgações reduzidas para micro-entidades elegíveis. A seguir, novos US GAAP no Reino Unido para os fins deste artigo: UK GAAP antigo. Substancialmente a FRS s, SSAP s, UITFs e práticas aceitas relevantes existentes e aplicadas antes da introdução do Novo US GAAP do Reino Unido - para fins deste artigo, esta é descrita como US GAAP do Reino Unido - para evitar dúvidas, este documento inclui FRS 26 (E normas relacionadas) no seu significado de UK GAAP do Reino Unido, salvo indicação em contrário da FRSSE. O Padrão de Relatórios Financeiros para Entidades Pequenas - as empresas que atendem aos critérios de elegibilidade podem preparar e arquivar contas abreviadas. Micro-entidades: as empresas que atendem aos critérios de elegibilidade podem preparar e arquivar contas abreviadas, com efeitos para períodos que comecem em 1º de janeiro de 2016 ou após esses requisitos Estão contidos na FRS 105 Para os períodos com início em ou após 1 de janeiro de 2015, as empresas médias e grandes do Reino Unido não terão permissão para preparar suas contas de acordo com o US GAAP do Reino Unido. Em vez disso, as entidades que aplicaram os princípios contábeis do Reino Unido antigo precisarão de transição de GAAP do Reino Unido antigo para uma das alternativas. Espera-se que, para muitas empresas que apliquem atualmente os US GAAP do Reino Unido, eles passarão para um dos FRS 101 ou FRS 102. Para os períodos com início em ou após 1 de janeiro de 2016, as pequenas empresas não poderão preparar suas contas de acordo com a FRSSE. Em vez disso, essas empresas precisarão se mudar para uma das novas alternativas GAAP do Reino Unido. É esperado que, para muitas entidades que atualmente apliquem o FRSSE, transitarão para a Seção 1A da FRS 102. A transição para o Novo US GAAP do Reino Unido impactará as contas em 2 formas principais: ativos e passivos na data de transição contábil serão identificados, reconhecidos e mensurados em De acordo com os requisitos dos novos padrões, os lucros e as perdas serão reconhecidos de acordo com as novas normas - estes podem diferir dos lucros e perdas que teriam sido reportados se o Velho Reino Unido GAAP ou o FRSSE tivessem sido mantidos Interação dessas mudanças com o imposto A legislação tributária para as empresas exige que os lucros de uma operação comercial sejam calculados de acordo com a prática contábil geralmente aceita, sujeito a qualquer ajuste exigido ou autorizado pela lei no cálculo de lucros para fins de Imposto sobre Sociedades (seção 46 da Lei de Imposto sobre Sociedades 2009). Existem regras semelhantes em outras partes da legislação tributária. A prática de contabilidade geralmente aceita para fins de Imposto sobre Sociedades é definida na seção 1127, Lei de Imposto sobre Sociedades, 2010 e é: Reino Unido. A prática de contabilidade geralmente aceita prática de contabilidade geralmente aceita em relação a contas de empresas do Reino Unido (que não sejam contas de IAS) que se destinam a dar uma Visão equitativa Em relação a uma empresa que prepara contas IAS significa prática contábil geralmente aceita em relação a contas IAS Conforme observado acima, o tratamento fiscal das empresas depende fortemente do tratamento contábil adotado nas contas da empresa. Com a introdução do IAS em 2004 2005, foram feitas várias mudanças na legislação tributária para lidar com certas questões que surgiram para empresas que transicionaram para IAS em suas contas de entidade. Em muitos casos, o efeito dessas regras é fornecer tratamento tributário, que é amplamente equivalente às empresas que continuaram a usar os US GAAP anteriores. As mudanças feitas no estatuto fiscal geralmente são restritas a empresas que possuem contas IAS. Assim, as regras também se aplicam às empresas que, por exemplo, adotaram a FRS 26, com o resultado de que os contratos de derivativos foram avaliados de forma justa. As regras também são susceptíveis de serem relevantes para as empresas que adotam FRS 101, FRS 102 ou Section 1A da FRS 102, onde enfrentam problemas semelhantes aos encontrados pelas empresas que adotam IAS. Empresas não incorporadas do Reino Unido é possível que as empresas incorporadas fora do Reino Unido residam no Reino Unido. Além disso, o estatuto fiscal pode exigir a consideração da aplicação da prática contábil geralmente aceita para empresas que residem no Reino Unido (por exemplo, empresas controladas estrangeiras). Na maioria dos casos, aplica-se a mesma definição legal de prática contábil geralmente aceita. Como tal, onde a empresa prepara contas IAS, estas serão usadas para calcular lucros e, em outros casos, os lucros serão calculados com base em US GAAP (como seria aplicável a essa empresa). PARTE A Comparação entre o UK GAAP antigo e o FRS 102 Esta parte do documento fornece uma comparação das diferenças contábeis e fiscais em curso que ocorrem entre os UK GAAP do UK antigo e a FRS 102. 1. Relatório de desempenho financeiro Contas GAAP antigas do Reino Unido preparadas de acordo com o Reino Unido antigo Os GAAP devem apresentar, entre outras coisas, uma conta de ganhos e perdas (PampL), balanço patrimonial e, quando aplicável, uma demonstração do total de ganhos e perdas reconhecidos (STRGL). O formato do PampL e do balanço são determinados pelo direito da empresa, enquanto o formato do STRGL é definido pela FRS 3. FRS 102 (excluindo a Seção 1A da FRS 102) As contas elaboradas de acordo com o FRS 102 também são necessárias para apresentar um balanço patrimonial ( Ou demonstração da posição financeira). A Seção 5 da FRS 102 fornece aos preparadores uma escolha política de apresentar seu total resultado abrangente por um período como: um único extrato de receita abrangente, caso em que a demonstração apresenta todos os itens de receita e despesa reconhecidos no período 2 declarações de renda Declaração e uma declaração separada de renda abrangente A abordagem de declaração única é semelhante a um PampL e STRGL combinados enquanto a abordagem de 2 declarações os mantêm separados. Enquanto a FRS 102 difere dos princípios contábeis do Reino Unido antigo a este respeito, deve notar-se que, para as empresas que adotam o FRS 102, os requisitos de formato do Companies Act ainda se aplicam. A FRS 102 também exige que seja apresentada uma demonstração das mudanças no patrimônio que capte um lucro ou perda para um período de relatório, outros resultados abrangentes do período, os efeitos das mudanças nas políticas contábeis e as correções de erros materiais reconhecidos no período, e Os montantes de investimentos e dividendos e outras distribuições para investidores de capital durante o período. Embora os requisitos de formato do Companies Act permaneçam em muitos casos, a terminologia utilizada na FRS 102 difere dos antigos GAAP do Reino Unido. Como resultado, é possível que determinados itens sejam descritos de forma diferente em comparação com anteriormente e de uma entidade para outra. O FRS 102 permite o uso de títulos que diferem daqueles utilizados no padrão em si, e algumas empresas podem reter as descrições de UK GAAP do Reino Unido. Reconciliação de movimentos em fundos de acionistas A demonstração de mudanças no patrimônio líquido do UK GAAP inclui a escolha de se apresentar a reconciliação de movimentos em fundos de acionistas como um extrato primário, conforme mencionado anteriormente, seção 5 da FRS 102, permite que uma entidade prepare um único Declaração de desempenho em vez de uma demonstração de resultados separada e um extrato separado da receita abrangente - esta declaração combinada é geralmente chamada de demonstração do resultado abrangente ou demonstração de resultados e outros resultados abrangentes, em algumas circunstâncias, o FRS 102 permite que uma entidade produza uma declaração De renda e lucros acumulados no lugar da demonstração do resultado abrangente e da demonstração das mudanças no patrimônio. O apêndice 3 da FRS 102 fornece uma tabela de comparação da terminologia da Lei das empresas e da terminologia da FRS 102 Seção 1A da FRS 102 As entidades que preparam suas contas usando a Seção 1A Da FRS 102 só terá de apresentar um balanço, ganhos e ganhos Nt e notas limitadas. Eles não serão obrigados a apresentar quaisquer outras declarações primárias, mas são encorajados a apresentar uma demonstração da receita abrangente (às vezes referida como a demonstração do total de ganhos e perdas reconhecidos) e um extrato que mostra as mudanças no patrimônio líquido. Eles também terão a opção de apresentar um balanço patrimonial e uma demonstração de ganhos e perdas. O balanço abreviado inclui apenas os principais títulos (ativos intangíveis, ativos tangíveis, investimentos, ações, devedores, caixa, antecipados, credores, provisões, provisões, capital social, prémio de emissão, reserva de reavaliação, outras reservas e reserva PampL). Não é necessária mais análise desses títulos. A conta abreviada de ganhos e perdas começa com um único valor para lucro bruto ou perda e outros resultados operacionais. Não há divulgação separada do volume de negócios, custo de vendas e outras receitas operacionais. Posição fiscal Embora as referências e os títulos utilizados na FRS 102 estejam alinhados com os utilizados no IAS, o estatuto fiscal foi atualizado para abranger ambos os conjuntos de terminologia. Uma referência em estatuto à demonstração de resultados, por exemplo, terá seu significado contábil normal. Além disso, os requisitos reduzidos de divulgação permitidos pela Seção 1A da FRS 102 normalmente não teriam efeito na posição fiscal da empresa. 2. Contas consolidadas, demonstrações financeiras, investimentos em empresas associadas e joint ventures. Seja preparado com o USGA BRITÂNICO do Reino Unido ou com o novo US GAAP, a relevância das contas consolidadas e da contabilização patrimonial é muito limitada na legislação tributária do Reino Unido e não se pensou que a FRS 102 representa qualquer alteração significativa Isso exigiria revisitar as poucas áreas da legislação tributária do Reino Unido que tenham em conta as contas consolidadas (como aspectos dos arranjos de locação financeira (Capítulo 2 Parte 21 CTA 2010), regras de ativos imobilizados intangíveis (Parte 8 CTA 2009) e o World Wide Regras da dívida (Parte 7 da TIOPA 2010)). Tampouco o tratamento dos associados, por exemplo, as joint ventures em demonstrações financeiras separadas não tem relevância para o imposto de acordo com a legislação atual do Reino Unido. Contudo, as contas consolidadas podem ser informativas e podem fornecer informações úteis que não aparecem no rosto das contas individuais. 3. Políticas, estimativas e erros de contabilidade Contabilização de uma alteração na política contábil A FRS 3, Relatório de desempenho financeiro, exige que as alterações na política contábil sejam aplicadas retrospectivamente e que o efeito cumulativo dos ajustes do período anterior seja apresentado ao pé do STRGL. A seção 10 da FRS 102 exige que uma alteração na política contábil resultante de uma alteração nos requisitos de um resumo FRS ou FRS seja representada de acordo com os requisitos desse resumo FRS ou FRC revisado. Quando o padrão não contém requisitos específicos, a mudança na política, de uma maneira comparável aos antigos padrões contábeis do Reino Unido. Será aplicado retrospectivamente até a primeira data que seja praticável como se a nova política sempre tivesse aplicado. O requisito de aplicar a política retrospectivamente é semelhante entre o UK GAAP antigo e o FRS 102, mas há uma diferença na forma como isso é apresentado. Conforme mencionado acima, em conformidade com o US GAAP do Reino Unido. A FRS 3 requer que os efeitos cumulativos dos ajustes do período anterior sejam apresentados ao pé da STRGL. Por outro lado, a FRS 102 exige que a mudança seja reconhecida na demonstração da alteração no patrimônio líquido. Contabilização da alteração na estimativa O UK GAAP antigo exige que uma alteração na estimativa seja aplicada de forma prospectiva. Por exemplo, quando uma entidade altera a vida estimada útil de um imobilizado tangível, não ajusta a depreciação apresentada. Em vez disso, a depreciação é ajustada prospectivamente para refletir a vida econômica útil revisada. O FRS 102 é consistente com o USGAGA do Reino Unido antigo a este respeito. Contabilização de erros Quando um erro fundamental é identificado, a FRS 3 exige que isso seja contabilizado pela repetição dos números comparativos do período anterior. Os erros que não são considerados fundamentais são contabilizados no período em que são identificados. A Seção 10 da FRS 102 exige que, na medida do possível, uma entidade deve corrigir os erros materiais retrospectivamente nas primeiras demonstrações financeiras autorizadas para emissão após o descobrimento do erro, através da reposição dos números comparativos do período anterior. Os erros que não são considerados como representando erros materiais são contabilizados no período em que são identificados. Tratamento tributário Para o lucro comercial Capítulo 14 Parte 3 O CTA 2009 prevê que, se houver uma mudança de uma base válida, sobre a qual os lucros de uma operação são calculados para outra base válida (por exemplo, em uma mudança de política contábil), um ajuste deve ser Calculado para garantir que os recibos das empresas serão tributados uma vez e uma vez e as deduções serão dadas uma vez e uma vez apenas. Para fins de imposto sobre sociedades, os ajustes são tratados como recibos ou deduções no cálculo dos lucros comerciais. Essa abordagem continuará a ser aplicada para ajustes de períodos anteriores decorrentes de acordo com a Seção 10 da FRS 102. O acima se aplica a mudanças de uma base válida para outra. Quando a mudança é de uma base inválida (como pode ocorrer quando um erro material é identificado nas contas), a lei tributária do Reino Unido exige que a base inválida seja corrigida para fins fiscais no período que ocorreu pela primeira vez com os períodos subseqüentes também corrigidos para o imposto Propósitos. Se o imposto pode ser cobrado ou os reembolsos reclamados por períodos anteriores dependem dos prazos para fazer ou modificar autoavaliações. Regras tributárias similares aplicam-se para mudanças nas políticas contábeis ou erros em itens não comerciais, como relações de empréstimos, contratos de derivativos e ativos fixos intangíveis. 4. Instrumentos financeiros 4.1 Introdução Em termos contábeis, um instrumento financeiro é um contrato que origina um ativo financeiro de uma entidade e um passivo financeiro ou instrumento patrimonial de outro. Exemplos de instrumentos financeiros comuns incluem dinheiro, devedores comerciais, credores comerciais, títulos, instrumentos de dívida e derivativos. As empresas que aplicam o USGAGA do Reino Unido antigo caem em 2 campos principais, aqueles que aplicam FRS 26 e aqueles que não. As empresas que não aprovaram a FRS 26 provavelmente verão as maiores mudanças como resultado da adoção da FRS 102. Além disso, de acordo com a FRS 102, uma empresa possui efetivamente 3 opções para a contabilização de instrumentos financeiros: (i) Seções 1112 da FRS 102 (ii) IAS 39 ou (iii) IFRS 9. Isso significa que existem 6 possibilidades de transição de US GAAP do Reino Unido para FRS 102. Este capítulo do documento concentra-se nas empresas que atualmente não aplicam o FRS 26, pois é provável que essas empresas vejam o Maior mudança. O documento aborda as opções de Seções 1112 e IAS 39 de acordo com o FRS 102. Este artigo não considera a interação contábil e tributária onde a terceira opção, IFRS 9, é adotada. Esta seção do documento é aplicável para os períodos contábeis que começam antes de 1 de janeiro de 2016. Para os períodos contábeis iniciados em ou após 1 de janeiro de 2016, há mudanças na relação de empréstimo e nas regras do contrato de derivativos que podem afetar o tratamento tributário. Em particular, o tratamento fiscal agora segue os valores reconhecidos nos lucros ou prejuízos. Dado que muitas empresas do Reino Unido adotarão a FRS 102 pela primeira vez em 2015, o documento não foi atualizado para essas mudanças. Note-se que este artigo trata dos custos de empréstimos no capítulo 14, conversão de moeda estrangeira no capítulo 17 e passivos e patrimônio no capítulo 18. 4.2 Requisitos gerais Antigos US GAAP Conforme mencionado acima, para as empresas que utilizam o USGAGA do Reino Unido antigo, a contabilização de instrumentos financeiros pode ser segregada Em 2 campos aqueles que aplicam FRS 26 e aqueles que não. A FRS 26 está alinhada à IAS 39 e é obrigatória para empresas com dívida ou capital próprio listadas que não utilizam IAS. É opcional para todas as outras entidades, e eles podem aproveitar a opção de usar a contabilidade de valor justo que faz parte da lei de empresas do Reino Unido. Para as empresas que não aplicam a FRS 26, não existe um padrão específico e abrangente para instrumentos financeiros nos PCGA do Reino Unido antigo. Em vez disso, a contabilização de instrumentos financeiros é determinada principalmente pelos requisitos da FRS 4 (emissor de instrumentos de capital), SSAP 20 (transações em moeda estrangeira), FRS 5 (substância sobre o formulário, incluindo algumas questões de desreconhecimento de reconhecimento). Caso contrário, para as empresas que não aplicam a FRS 26, a contabilização de instrumentos financeiros baseia-se principalmente nos princípios gerais da NIC 18, em particular o conceito de acumulação e as disposições relevantes do direito das sociedades. A Lei das Sociedades Comerciais prevê que os ativos atuais (como os devedores em dinheiro e os comerciantes) são reconhecidos no pricecost de compra, enquanto o conceito de acumulação é aplicado na determinação, por exemplo, do reconhecimento e mensuração da receita de juros nos credores. Em contraste com o UK GAAP antigo (onde o FRS 26 não foi adotado), a FRS 102 fornece uma empresa com orientação específica sobre a contabilização de todos os instrumentos financeiros. Na Seção 11, fornece três opções contábeis: aplicação da Seção 11 e da Seção 12 da aplicação da FRS 102 dos critérios de reconhecimento e mensuração da IAS 39 aplicação dos critérios de reconhecimento e mensuração da IFRS 9 (e IAS 39 conforme alterada para a IFRS 9) Seção 11 e as opções 11 e 12 da seção 12 dentro da FRS 102 fornecem orientação específica sobre a contabilização de instrumentos financeiros. A Seção 11 aborda os instrumentos financeiros básicos, enquanto a Seção 12 considera todos os outros instrumentos financeiros. Embora as Seções 11 e 12 abordem a contabilização de instrumentos financeiros, existem certas exceções ao seu escopo, incluindo contratos de seguros, investimentos em subsidiárias, associadas e joint ventures e arrendamentos 2. No entanto, a Seção 12 aplica-se, por exemplo, a todos os instrumentos financeiros derivativos. Os instrumentos financeiros básicos são aqueles considerados como diretos - os exemplos fornecidos na Seção 11 incluem dinheiro, devedores comerciais, credores comerciais e empréstimos bancários simples com condições padrão de reembolso. Esses instrumentos são tipicamente reconhecidos ao preço da transação e medidos pelo custo amortizado. Isto é em grande parte consistente com o UK GAAP antigo. Outros instrumentos financeiros não básicos referem-se a todos os outros instrumentos financeiros. Em contraste com os instrumentos financeiros básicos, outros instrumentos financeiros são tipicamente reconhecidos e posteriormente mensurados ao valor justo no PampL. Em particular, os seguintes são exemplos de instrumentos que agora serão mantidos pelo valor justo de acordo com a Seção 12 da FRS 102: todos os derivativos (incluindo swaps de taxas de juros, um compromisso a prazo para comprar uma mercadoria capaz de liquidar dinheiro e Opções e contratos a termo) empréstimos que não são dívidas simples de baunilha, onde, por exemplo, o valor reembolsável pode variar ou onde as taxas de juros não padronizadas são utilizados investimentos em dívida conversível quando o retorno ao detentor pode variar com o preço das ações de emissão dos emissores Em vez de apenas com as taxas de juros do mercado 3 Os requisitos da Seção 12 da FRS 102 representam uma mudança significativa de USGAs do Reino Unido antigo (ambos onde a FRS 26 tem e não foi adotada). É provável que muitos outros instrumentos financeiros sejam obrigados a ser avaliados de acordo com o FRS 102 do que atualmente é o caso nos Old GAAP do Reino Unido. Opção IAS 39 Como mencionado acima, a FRS 102 também permite que um usuário tome a decisão da política de aplicar os critérios de reconhecimento e medição da IAS 39. Embora a IAS 39 não distingue entre instrumentos financeiros básicos e outros da mesma forma, compartilha algumas semelhanças com a Seção 12 da FRS 102, por exemplo, em ambos os casos, uma empresa normalmente será obrigada a contabilizar todos os instrumentos financeiros separadamente, enquanto os instrumentos sintéticos ou compostos são relativamente comuns nos antigos GAAP (onde o FRS 26 não foi adotado). Abaixo estão as características que resultariam em um instrumento financeiro sendo mensurado pelo valor justo de acordo com a NIC 39: ativos e passivos mantidos para fins de negociação ou especificamente ativos e passivos designados inicialmente pela empresa a valor justo por meio do resultado todos financeiros derivativos Instrumentos Observe que, de acordo com a opção IAS 39, os instrumentos de dívida designados como Disponíveis para Venda (AFS) serão mensurados ao valor justo com ganhos e perdas de valor justo reconhecidos diretamente em Outras Receitas Abrangentes (OCI), enquanto as receitas de juros, câmbio e impairment serão Continuam a ser reconhecidos em lucros ou prejuízos. Mais uma vez, isso representa uma mudança significativa do antigo US GAAP (onde o FRS 26 não foi adotado). Tratamento tributário Para as empresas, a maioria dos instrumentos financeiros cairá em relações de empréstimo (na Parte 5 CTA 2009), dívidas de dinheiro sem empréstimos (tratadas como relações de empréstimo ao abrigo do Capítulo 2 da Parte 6 CTA 2009) ou contratos de derivativos (na Parte 7 CTA 2009) . A legislação tributária do Reino Unido prevê, em geral, que o tratamento contábil desses tipos de instrumentos é seguido para fins fiscais. Este documento não cobre os instrumentos financeiros que se enquadram nessas categorias, por exemplo, instrumentos de capital sob a forma de ações e garantias. Um aspecto particular da tributação das relações de empréstimos e contratos de derivativos é que se afasta do princípio normal de procurar apenas a conta de ganhos e perdas (ou demonstração de resultados). A legislação garante que a maioria dos itens levados às reservas sejam levados em conta. Isso inclui os valores reconhecidos no STRGL nos US GAAP do Reino Unido e os valores reconhecidos como itens de OCI sob FRS102 ou IAS. Uma outra regra garante que, quando um lucro ou uma perda de um contrato de empréstimo ou derivado seja reconhecido diretamente no patrimônio, isso seria levado em conta da mesma forma que se fosse reconhecido em lucros ou prejuízos ou através de reservas. Como resultado, quando as contas mensuram o instrumento pelo valor justo, quer com lucros em lucros ou prejuízos, quer como itens de outros resultados abrangentes, esses movimentos de valor justo normalmente serão levados em conta para o imposto. No entanto, existem certas excepções em que o estatuto fiscal especifica um tratamento contabilístico específico. O exemplo mais comum é onde existe uma relação de empréstimo entre empresas conectadas. Nesse caso, a seção 349 CTA 2009 exige que os lucros sejam calculados para fins fiscais com base no custo amortizado. Além disso, existem regras específicas que tratam de contratos de derivativos que fazem parte de uma relação de hedge (estes são explicados em mais detalhes abaixo). Além disso, quando, de acordo com a opção IAS 39, os ativos financeiros são tratados como mantidos até o vencimento (HTM), espera-se que esses ativos sejam mantidos até o vencimento. São mensurados ao custo amortizado. No entanto, a venda de um pequeno número de tais ativos antes do vencimento pode resultar em todos os ativos da HTM ficando contaminados, de modo que os ativos devem ser contabilizados como sendo AFS. Regras fiscais específicas aplicam-se neste cenário - veja o CFM 33150 para obter mais detalhes. Ajustes de transição Quando um instrumento financeiro é mensurado segundo uma base diferente da FRS 102 em comparação com o US GAAP do Reino Unido, é provável que os ajustes de transição na adoção do FRS 102 sejam apresentados. Para obter mais orientações sobre as disposições transitórias aplicáveis ​​aos instrumentos financeiros, ver a Parte B deste documento. Further detail on specific transactions involving financial instruments where the requirements of FRS 102 differ from the requirements of Old UK GAAP are set out below. 4.3 Debt-equity swap Where debt is extinguished through the issue of an entitys own equity the accounting applied in accordance with Old UK GAAP may differ from that required by FRS 102. Old UK GAAP. where FRS 26 has not been adopted, permits an accounting policy choice as regards the recognition of a gain or loss. In certain situations it may be appropriate to adopt a no gainno loss policy, so that the value of the equity issued is treated as being equal to the carrying value of the debt given up. However, companies are permitted to adopt a policy of recognising a gain or loss on such transactions. Under both approaches, its necessary to consider the interaction with the requirements of company law as regards the amount of share premium to be recorded and the requirements as regards realised profits 4 . FRS 102 doesnt provide specific guidance on debt-equity swaps. Section 11 of FRS 102 5 requires that any difference between the carrying amount of the financial liability extinguished and the consideration paid is recognised in profit or loss. In addition Section 22 requires that equity instruments are recognised on issue at the fair value of the cash or other resources received. However, companies will need to consider the specific facts and nature of the transaction undertaken. For example, company law considerations regarding realised profits and share premium accounts will need to be considered and may impact on the accounting treatment. Tax treatment Under general principles of the loan relationship regime, an amount of profit recognised to the profit and loss account, or to reserves, would be brought into account. However, section 322 CTA 2009 will typically exempt gains arising where a debt is released in consideration of ordinary shares. See CFM 33200 onwards for further details of this exemption. 4.4 Debt restructuring derecognition Debt may be restructured or have its terms modified such that, in accordance with FRS 5 and Old UK GAAP (where FRS 26 isnt adopted), no gain or loss would be recognised in the accounts. In contrast, FRS 102 requires that, where the modification or restructuring to the debt is considered substantial, the original debt instrument will be derecognised and the new debt instrument recognised at its fair value. To the extent that the fair value of the new instrument differs from the carrying value of the original debt instrument a gain or loss will typically be recognised as an item of profit or loss. This gain or loss should reverse over the remaining life of the instrument. Tax treatment The loan relationship would normally be taxed in line with the amount recognised in the accounts. As such, the profit or loss on derecognition rerecognition will typically be brought into account. Note that the government has included within Finance (No.2) Act 2015 an exemption to cover distressed debt, which would apply in certain cases where the loan is modified or replaced. The proposal is that the exclusion would apply to modifications and releases from 1 January 2015. Transition On transition Section 35 of FRS 102 provides that financial assets and liabilities derecognised under the previous accounting framework shall not be recognised on adoption of FRS 102. Section 35 also provides that where a financial asset or liability would have been derecognised under FRS 102 but under the companys previous accounting framework hadnt been derecognised a company may, on transition, either (i) derecognise the financial asset or liability on adoption of FRS 102 or (ii) continue to recognise until disposed of or settled. However, no exclusions apply where the derecognition occurs after the accounting transition date for example, after the start of the prior period comparatives. As a result, the company may be required to derecognise recognise the debt. The Change of Accounting Practice Regulations were amended in December 2014 to address this issue in certain instances of distressed debt. For further guidance on the transitional provisions applying to financial instruments see Part B. 4.5 Initial recognition - non-market instruments Old UK GAAP. where FRS 26 isnt applied, typically requires that financial instruments are initially recognised at cost. This cost may or may not equate to the fair value of the financial instrument. In contrast under FRS 102, whether through the application of Section 11 and 12 or through the IAS 39 option, financial instruments are typically measured on initial recognition at (i) transaction price (ii) present value (of there is a financing element) or (iii) at fair value. The transaction price (or cost) will typically, but may not always, equate to the present value fair value of the instrument. Where the transaction cost differs from the present value fair value of the instrument its possible that a day-one gain or loss could arise. For example, this can be an issue with non-interest bearing debts which arent repayable on demand. Tax treatment The loan relationship would normally be taxed in line with the accounts. As such, any day-one gain or loss will typically be brought into account. However, consideration should be given to the facts which led to the transaction price differing from fair value. In particular, there are 2 sets of provisions which may alter this position. Provision 1 Where the loan arises between connected companies, the amounts to be brought into account on the basis of an amortised cost basis of accounting as required by sections 313 and 349 CTA 2009 - in particular this requires the tax treatment to be based on the loan shown in the accounts at cost and adjusted for amortisation and impairments What constitutes cost will depend on the particular facts in question. HMRC would normally accept that this equates to the cost of the loan under Old UK GAAP (where FRS 26 has not been applied), such that in this case the tax treatment under FRS 102 will largely follow the Old UK GAAP position (where FRS 26 has not been applied). See CFM35190 for further details of the rules for taxing loan between connected companies. Provision 2 Secondly, if the loan did not arise as a result of a transaction between persons acting at arms length it may be necessary to apply the transfer pricing rules in Part 4 of TIOPA 2010. Where any tax advantage is already negated by the connected companies then the transfer pricing rules are unlikely to apply See the International Manual for further details of the transfer pricing rules. HMRC has published draft guidance on this issue. Transition Potentially this could result in a transitional adjustment. For further guidance on the transitional provisions applying to financial instruments see Part B of this paper. 4.6 Hedging relationshipssynthetic instuments Old GAAP. where FRS 26 has not been adopted, requires derivatives that are entered into as part of a companys hedging strategy to be accounted for on an historic cost basis equivalent to that used for the underlying asset, liability, position or cash flow. In contrast, both Section 12 of FRS 102 and the IAS 39 option typically require all derivatives to be accounted for separately and to be measured at fair value. Section 12 of FRS 102 and IAS 39 both then provide certain hedge accounting rules. Under both Section 12 of FRS 102 and the IAS 39 option, hedge accounting is only permitted where certain criterion are met. However as part of the amendments made to FRS 102 in July 2014 the criteria was changed making hedge accounting more readily available to entities where its consistent with their risk management processes. The mechanics of hedge accounting, whether applying Section 12 of FRS 102 or under the IAS 39 option are thereafter comparable. Whether applying Section 12 of FRS 102 or under the IAS 39 option, the mechanics for hedge accounting are significantly different to the accounting for synthetic instruments under Old UK GAAP (where FRS 26 isnt applied). Tax treatment Without special rules, hedge relationships would not typically be effective for tax purposes, whether or not they were designated as a hedge for accounting purposes. The Disregard Regulations (SI 2004 3256) were introduced to address this issue. Broadly speaking, where a derivative is part of a hedging relationship the rules operate to restore the Old UK GAAP position (for example, where FRS 26 isnt applied). In particular, there are specific regulations for derivatives dealing with currency, commodities, debt and interest rates. The rules apply in a number of different circumstances and they also contain particular elections that may be made. For periods of account commencing on or after 1 January 2015, the default setting is for the tax treatment of derivative contracts to follow the profit and loss account. Companies have the option of electing into computational provisions in the Disregard Regulations. Previously, companies had the ability to elect out from the Regulations. For companies that already apply fair value accounting in respect of derivatives which potentially fall within the scope of the Disregard Regulations, they will continue with their existing treatment. These company can, if they so wish, change their status in the future on a prospective basis. Companies that will be applying fair value accounting for the first time in a period of account commencing on or after 1 January 2015 will need to decide whether to elect-in to regulations 7, 8 and 9. There are strict deadlines for making these elections. Its also likely that transitional issues could arise in such cases. For further guidance on the transitional provisions applying to financial instruments and the interaction with the Disregard Regulations see Part B of this paper. Further information HMRC has published additional guidance to help companies with hedging instruments making the transition to new accounting standards. This is available at: Corporation Tax: Disregard Regulations for derivative contracts . Further information is available in the Corporate Finance Manual (CFM ) as follows: derivative contracts are explained at CFM13010 onwards hedge accounting is explained at CFM27000 onwards the tax treatment of derivatives is explained at CFM57000 onwards 4.7 Hybrid instrumentsembedded derivatives This paper doesnt address in detail the position of hybrid instruments and the embedded derivatives. This is a complex area and affected companies will need to consider the accounting and tax treatment carefully. In overview, FRS 26 and IAS 39 require companies to separate out (bifurcate) embedded derivatives from host contracts. However, bifurcation isnt typically permitted under Old UK GAAP (where FRS 26 isnt applied) or under Sections 11 12 of FRS 102 (although in both cases the issuer of compound instruments will still separate out the equity component in accordance with FRS 25 or Section 22 respectively). Links to the relevant guidance is set out in chapter 18 (liabilities and equity) of this paper. 4.8 Companies that currently apply FRS 26 The above commentary focuses on companies that dont currently apply FRS 26. Companies that have adopted FRS 26 and choose to apply the IAS 39 option under FRS 102 are likely to see no change in the accounting of financial instruments. For those that choose to apply the Section 11 12 option certain elements wont change but the basicother distinction has the potential to result in significant changes. For example, such companies could see the following differences: as noted above, financial instruments are required to be fair valued under Section 12 for all but basic instruments - loans previously recognised on an amortised cost basis may therefore be measured at fair value in accordance with Section 12 as noted above, Sections 11 and 12 dont permit the bifurcation of embedded derivatives (although the issuer of compound instruments will still separate out the equity component under Section 22) - for example the holder of a hybrid financial instrument is required under FRS 26 to bifurcate the instrument into its host debt and embedded derivative - the host debt is then measured on an amortised cost basis and the embedded derivative at fair value - in contrast FRS 102 Section 12 there is no equivalent requirement to split the instrument for accounting purposes, and the whole instrument would typically be fair valued As such, transition adjustment may arise - see Part B of this paper. 5 Inventoriesstock Section 13 of FRS 102 differs from SSAP 9 insofar as it specifically excludes from its scope WIP in the course of construction contracts (covered in section 23 of FRS 102), agricultural produce and biological assets (covered in section 34 of FRS 102) and financial instruments (section 11 and 12 of FRS 102). For many entities these differences will have no impact on the recognition or measurement of stock. However entities operating in the agriculture sector, for example, may, in accordance with FRS 102, apply either a cost model or a fair value model. The use of the fair value model is likely to represent a significant change in the measurement basis of stock and hence the timing of profitslosses on such stock. For tax purposes there are 2 acceptable valuation bases for stock, either the lower of cost and net realisable value, or mark to market (fair value). If either of these methods are used no ongoing adjustment is required for tax purposes. Where mark to market is used there is no tax law that requires the profits or losses disclosed by the accounts to be adjusted for tax purposes. Note there are particular tax rules, the herd basis, that can be applied to particular farm animals. Guidance on this and the valuation of farming stock is in the Business Income Manual. 6. Investment property Old UK GAAP (SSAP 19) requires an entity to carry investment property at their open market value with movements in value recognised each period in the STRGL unless they represent a permanent diminution in value in which case they are recognised in the PampL. Where investment properties are let to and occupied by another group entity for its own purpose, SSAP 19 contains an exemption which excludes such properties from its scope (hence they would be included as part of fixed assets). FRS 102 requires that investment property is initially recognised at cost 6 and subsequently measured at fair value. However in contrast to SSAP 19, FRS 102 section 16 requires those fair value movements to be recognised in the PampL. In addition FRS 102 section 16 doesnt contain an exemption comparable to that present in SSAP 19 for property let to and occupied by group entities. Hence certain properties treated as fixed assets under Old UK GAAP may now be classified as investment property under Section 16 of FRS 102. Note that FRS 102 section 16 does permit the use of the cost model where the fair value cannot be reliably measured without undue cost or effort. The accounting treatment of investment properties doesnt determine, for tax purposes, whether the property is held as an investment property (giving a capital receipt on disposal) or whether its part of a trading transaction (and so is on revenue account and forms part of the companys trading profits). Assuming the property is held, for tax purposes, as an investment, the income arising on the property is bought into tax as its recognised in the accounts (for example rental income would be bought into tax as recognised in profit or loss). In this case, movements in fair value of investment properties arent taxable. The disposal of the investment properties will typically give rise to a chargeable gain. In certain circumstances a company holding investment property as a lessee under an operating lease may, under section 16 for FRS 102, account for it as an investment property. Where it does so, the property is initially recognised at the lower of its fair value and the present value of the minimum lease payments. The corresponding creditor is accounted for as a finance lease (see Section 20 of FRS 102). Where this happens the tax rules applying to finance leases will apply. 7. Property, plant and equipment Section 17 of FRS 102 and FRS 15 are primarily about Property, plant and equipment (PPE ) or fixed assets to use the Companies Act and FRS 15 terminology. Both standards are broadly consistent in principle. However differences are present in particular Section 17 of FRS 102 requires that major spare parts are included in PPE Section 17 of FRS 102 requires that cost is measured by reference to the present value of all future payments where the asset is acquired under terms beyond normal credit terms Section 17 of FRS 102 doesnt permit the use of Renewals Accounting Section 17 requires that residual values are based on current prices rather than historic prices While such differences for accounting purposes are present, UK tax law departs from the accounting standards by disallowing depreciation and revaluations in respect of capital assets, and instead granting capital allowances (on some assets). Hence accounting changes arent expected to have a significant tax impact. In some cases where revenue expenditure is added to the cost of an asset, tax law follows the accounts by recognising for tax purposes amounts reflected in profit and loss account by way of depreciation charge to the extent that they are a write off of revenue expenditure. In those cases where depreciation under Section 17 of FRS 102 differs from that under FRS 15 (for example, because of revaluation of residual values) tax will follow the amount as per Section 17 of FRS 102. As noted above there is no equivalent to Renewals accounting (FRS 15 paragraph 97-99) under Section 17 of FRS 102 so there may be an adjustment for tax purposes made under the change of basis legislation see part B of this paper. 8. Intangible assets including goodwill Intangible assets and goodwill arising on business combinations The definition of an intangible asset in Old UK GAAP (FRS 10) states that intangible asset are Non-financial fixed assets that dont have physical substance but are identifiable and are controlled by the entity through custody or legal rights. FRS 102 defines an intangible asset (other than goodwill) as an identifiable non-monetary asset without physical substance where identifiable is an asset that is separable or arises from a legal contract or other legal right. This definition is different from that present in Old UK GAAP in so far as the intangible asset need not be separable from the business. Consequently either on transition (where the exemption to retain previous GAAP figures isnt used) or on subsequent business combinations, more intangible assets may be recognised under FRS 102 than would have been recognised under Old UK GAAP . For tax purposes Sections 871-879 of Part 8 CTA 2009 provide a comprehensive set of rules for changes in accounting for intangibles and especially for cases where what is included entirely as goodwill under Old UK GAAP is disaggregated into different types of intangible property with different amortisation rates or impairment factors under FRS 102. Intangible assets and goodwill - Useful Economic Life (UEL ) FRS 10 states that goodwill and intangibles should be amortised over their UEL. It also states that there is a rebuttable presumption that the UEL wont exceed 20 years. FRS 10 does permit the use of an indefinite UEL in which case its not amortised but is instead subject to annual impairment reviews. FRS 102 differs from Old UK GAAP in respect of UEL. Firstly FRS 102 doesnt permit an indefinite life. All intangibles and goodwill are presumed to have a finite life and the period over which they are subject to amortisation should reflect this. Where the useful life of the intangible asset can be reliably estimated this life is used as the UEL. Where a reliable estimate of the UEL cannot be made, FRS 102 states that the UEL must not exceed 5 years (note however, that effective periods commencing on or after 1 January 2016 this is changed to 10 years). In general tax relief is provided on either the amortisationimpairment of goodwill and intangibles recognised in the accounts. Sections 871 to 873 of CTA 2009 ensure that any write up on the transition from Old UK GAAP to FRS 102 will be a taxable credit for Part 8, and section 872 ensures that any such credit is limited to the net amount of relief already given. Any impairment from written up cost will be deductible. Tax relief is unlikely to be affected if an entity has elected for a fixed rate of 4. Note that a fixed rate election must be made within 2 years of the end of the accounting period in which the expenditure was incurred and cannot be reversed. Software costs FRS 10 requires that software costs which are directly attributable to bringing an item of IT into use within the business are recognised as part of tangible fixed assets. Where such costs did not relate to bringing an item of IT into use they would typically have been written off direct to the PampL. In addition UITF 29 provides that, where certain criteria are met, website development costs are recognised as part of tangible fixed assets. FRS 102 doesnt specify how such costs should be treated. Hence the nature of the item should be considered in determining its treatment. Its possible that having considered the nature of the software that its recognised as an intangible asset. For companies where costs on expenditure such as software have been previously written off to profit and loss account and claimed as a deduction in a Case I computation in respect of expenditure on a tangible asset, the following tax consequences will apply in respect of the change of accounting policy. First the adjustment in respect of the change of accounting basis will be taxed under Chapter 14 Part 3 CTA 2009. For example, a positive adjustment is brought into account as a taxable receipt. Second, capitalised expenditure in respect of an intangible asset will be relieved under the rules in Part 8 CTA 2009 as its written down in the accounts (subject to the normal exclusions, including the pre-FA 2002 rule). Guidance on many of these issues is in HMRC s CIRD Manual (in particular see CIRD12300 which address changes in accounting policies for intangible assets within Part 8 CTA 2009). 9. Business combinations Section 19 of FRS 102 is broadly comparable to FRS 6 and FRS 7. However particular differences are present: because of the difference in the definition of an intangible asset an acquisition under FRS 102 may result in a different balancing figure being assigned to goodwill on a business combination there is a change in the measurement of the consideration given where that consideration is contingent the look back period in which provisional fair values can be amended is different (FRS 102 look back period is 12 months since acquisition date) a change in step acquisitions in some circumstances FRS 6 and 7 of Old UK GAAP are relevant in UK tax law only where the carrying value of an asset or liability acquired in a business combination is relevant for tax purposes, for example, for loan relationships. This also applies where a company is applying FRS 102. Tax law determines the value of trading stock for the business ceasing and its value for the successor business see Chapter 11 Part 3 CTA 2009. In respect of goodwill on business combinations please see chapter 8 of this paper. 10. Leases Entities that apply Old UK GAAP will use SSAP 21, UITF 28 and FRS 5 in determining the accounting treatment of leases. Entities that adopt FRS 102 will apply the recognition and measurement requirements of Section 20. Both Old UK GAAP and FRS 102 consider whether a lease transfers substantively the risks and rewards of the leased asset. However it should be noted that SSAP 21 includes a presumption that if the present value of the minimum lease payments is 90 or more of the fair value of the leased asset that it would typically be classified as a finance lease. Section 20 of FRS 102 doesnt contain this presumption. Nevertheless the emphasis on the transfer of risk and rewards is such that in most cases the classification of leases will be consistent between Old UK GAAP and FRS 102. Once the lease has been classified the accounting treatment thereafter is also, generally, comparable. However differences, even where the classification is the same, do exist and the interaction with tax is noted below. UITF 28 requires that operating lease incentives in the lessee are spread over the period ending on the date from which its expected that the prevailing market rent will be payable (if this period is shorter than the lease term, otherwise over the lease term). Section 20 of FRS 102 requires that lease incentives are spread over the term of the lease unless another way would better reflect the reality. Consequently there may be differences in respect of the period over which such incentives are recognised. Since the accounting is followed where the incentive isnt capital (for example, a rent free period) the difference may alter the timing of income recognition for tax purposes. UK tax law isnt entirely consistent with SSAP 21 (see Statement of Practice 391). But accounts figures (including where appropriate consolidated accounts) are recognised for the purposes of Chapter 2 Part 9 CTA 2010 and Chapter 2 Part 21 CTA 2010 which deal with leasing and finance leases with return in a capital form. For lessors, FRS 102 Section 20 requires use of the net investment method for finance leases, whilst SSAP 21 requires the net cash investment method. There may be differences in the timing of income recognition under the 2 bases. In some cases these affect the timing of income for tax purposes, for example, where Schedule 12 Finance Act 1997 applies. Legislation in sections 228B to 228F Capital Allowances Act 2001, and Chapter 5A Part 12 ICTA (inserted by FA 2006) brings the tax treatment of both lessors and lessees of finance leases of plant amp machinery into line with the accounting basis in FRS 102 Section 20 or SSAP 21 as appropriate. Note that its not envisaged that s.53 FA11 will apply to entities on transition to Section 20 of FRS 102 by virtue of subsection 3 of s.53 FA11. 11. Provisions There are no significant differences between Section 21 of FRS 102 and FRS 12. For tax purposes the recognition and measurement of provisions in the accounts forms the basis for the quantum and timing of tax relief (subject to adjustment where the expenditure is capital for tax purposes or otherwise disallowable). Consequently, for most companies its not expected that FRS 102 will have a significant tax impact in this area. 12. Revenue recognition In general, reporting of revenue in accounts is followed for tax purposes. There is no specific standard for revenue recognition in Old UK GAAP. However, Application note G of FRS 5 provides revenue recognition guidance in respect of the sale of goods and services as well as other specific revenue recognition scenarios, SSAP 9 provides guidance in respect of long term contracts and UITF 40 addresses service contracts. The general principles of revenue recognition within FRS 5 Application note G are that revenue is recognised when the seller obtains the right to consideration in exchange for the goods, services, or work performed. The right to consideration typically derives from the performance of its obligations under the terms of the exchange with the customer. FRS 5 application note G requires that, on recognition, revenue is measured at the fair value of the consideration received or receivable. Revenue recognition under FRS 102 will primarily be determined by Section 23 of FRS 102. The recognition criteria within Section 23 are broadly aligned with Old UK GAAP. In addition, where the respective recognition criteria are met, Section 23 also requires that revenue is recognised at the fair value of the consideration received or receivable. Hence while there are a few differences between Old UK GAAP and FRS 102 (for example the latter expressively addresses and defines construction contracts in Section 23), for many entities there will be no change following adoption of FRS 102. Consequently for many companies there will be no accounting or tax impact. 13. Government grants SSAP 4 requires that grants are recognised when there is reasonable assurance that related conditions, if any, will be met. Where reasonable assurance is present grants are then recognised in the accounts based on the relationship between the grant and the related expenditure. FRS 102 Section 24 states that the grant wont be recognised until the entity has reasonable assurance that it will or has complied with the grant conditions and that the grants will be received. It requires that an entity adopts either the accruals or performance model to determine the subsequent accounting for the grant. Under the accruals model grants relating to revenue are recognised in income on a systematic basis over the periods in which the entity recognises the relevant grant costs. Under the performance model Section 24 of FRS 102 states: a grant that doesnt impose specified future performance-related conditions on the recipient is recognised in income when the grant proceeds are received or receivable a grant that imposes specified future performance-related conditions on the recipient is recognised in income only when the performance-related conditions are met grants received before the revenue recognition criteria are satisfied are recognised as a liability Whether the accruals model or the performance model is adopted in overall terms the differences, if there are any, are limited to timing differences on recognition. For tax purposes grants which meet revenue expenditure, such as interest payable, are normally trading receipts, and this will continue where Section 24 of FRS 102 applies. 14. Borrowing costs FRS 102 Section 25 and FRS 15 on capitalising borrowing costs are similar both permit such treatment where relevant criteria are met. For companies section 320 CTA 2009 provides specific rules which allow relief for capitalised borrowing costs but only where they relate to a fixed capital asset or project. However, relief isnt available where the costs are capitalised in the carrying value of an intangible fixed asset which falls within Part 8 CTA 2009. The same approach will continue where Section 25 of FRS 102 is applied. See CFM 33160 for further details. 15. Share based payments Accounting for share based payments under Old UK GAAP (FRS 20) and FRS 102 (Section 26) are aligned with few differences. Tax deductions in respect of share based payments are governed by specific legislation in Part 12 CTA 2009. 16. Employee benefits Pension schemes In respect of accounting for pension schemes Section 28 of FRS 102 differs to FRS 17 in particular: it removes the multi employer exemption on defined benefit schemes such that the scheme position is reported in the solus accounts of the entity contractually or legally responsible for the plan the calculation of the net interest on defined benefit schemes is different. Under Section 28 of FRS 102 the net interest comprises the expected interest income on plan assets excluding the effect of any surplus that isnt recoverable and the interest cost on the scheme obligation. These changes, and others, arent expected to have an impact for tax. Under current UK tax law, sections 196, and 246 FA 2004 and sections 1290-6 CTA 2009 provide relief on a contributions paid basis. Holiday pay accural Under Old UK GAAP many entities did not accrue or provide for holiday pay. FRS 102 requires that when an employee has rendered services to an entity during a period any related holiday pay or similar is accrued for. For tax purposes this accrual would be treated in line with the treatment of unpaid remuneration which is dealt with at Part 20 Chapter 1 CTA 2009. Employee benefit trusts Under Old UK GAAP. UITF 32 provides guidance on how to account for Employee benefit trusts. The requirements of FRS 102 (Section 9) are comparable. FRS 102 states that there is a rebuttable presumption that contributions to an intermediate payment arrangement where the employer is a sponsoring entity are made in exchange for another asset and dont represent an immediate expense. In addition the assets and liabilities of the intermediary will be accounted for by the sponsoring entity as an extension of its own business. The above treatment doesnt apply where it can be demonstrated that the sponsoring entity wont obtain future economic benefit from the amounts transferred or it doesnt have control of the right or other access to the future economic benefit. For tax purposes the treatment of employee benefit contributions is dealt with at Part 20 Chapter 1 CTA 2010. 17. Foreign currency translation Under Old UK GAAP a company accounts for its currency exchange transactions in line with either SSAP 20 (where FRS 26 isnt applied) or FRS 23 (where FRS 26 is applied). For companies which have adopted FRS 23 (and FRS 26) the transition to FRS 102 and Section 30 isnt expected to result in any significant changes. For companies that applied SSAP 20 many wont encounter differences but when they do they may be significant. 5 main areas of difference are set out below. 17.1 Functionalpresentational currency Determination of functional currency under FRS 102 requires consideration of the currency of the primary economic environment in which the entity operates. Key factors in determining this are the currency that mainly influences the sales prices for goods and services and the currency of the country whose competitive forces and regulations mainly determine the sales prices of its goods and services. Consideration is also given to the currency in which funds from financing activities are generated and the currency in which receipts from operating activities are usually retained. This is in line with the accounting adopted by companies which currently apply SSAP 20. However, in contrast to SSAP 20, FRS 102 also specifically requires consideration of the influence of the parent on the companys operations and activities. It may be that when these factors are taken into account this will result in a different assessment of the companys functional currency. This could have a significant impact on the calculation of the profits recognised in the companys accounts. In particular, this can create exchange rate volatility where the companys assets and liabilities are denominated in a different currency to that of its functional currency. In addition, FRS 102 allows an entity to have a presentation currency which isnt necessarily the same as the functional currency. This typically has less impact on the calculation of the companys profit for a period (just that its expressed presented in a different currency). Chapter 4 of Part 2 CTA 2010 provides detailed rules as to how the companys profits are to be calculated for tax. CFM64000 explains the operation of these rules. It should be noted, though, that where an investment company changes its functional currency, exchange gains and losses arising on loan relationships and derivative contracts are excluded from tax if they arise as a result of a change in functional currency in the period of account in which the gains or losses arise and a period of account ending in the 12 months preceding that period. See CFM64120 for details. Where a company is a UK investment company it may be eligible to make a designated currency election. This must be made in advance of the date its to take effective. See CFM64500 onwards for further details. 17.2 Foreign operations (including branches) Income and expenditure of foreign operations (including branches) are translated from the functional currency of the foreign operation into the companys functional currency at actual or average rates not at closing. Exchange movements arising on retranslating the companys net investment in the foreign operation recognised in other comprehensive income. Note that where the company disposes of the foreign operation, the exchange movements previously recognised to other comprehensive income arent recycled to profit or loss. For tax purposes, the calculation of the companys profits from a trade or business undertaken through a foreign operation will typically be based on the amounts of profit or loss translated into the companys function currency in accordance with GAAP. Exchange differences arising from the retranslation of the net investment arent typically brought into account for Corporation Tax purposes. 17.3 Contract rate accounting Where a company enters into a contract to settle a transaction at a particular rate of exchange, SSAP 20 stated that the exchange rate fixed by the contract may be used to record the transaction. The position is different under FRS 102. The use of a contracted rate of exchange to translate monetary items isnt permitted. The closing rate as at the balance sheet date should be used instead. The contract would typically represent a derivative financial instrument which would then be separately recognised and measured at fair value in the accounts. This is a further example of a hedging relationship where under FRS 102 the hedged item and the hedging instrument need to be recognised separately in the accounts. The accountancy and tax treatment of hedging relationships is discussed above (see chapter 4.6). The Disregard Regulations (regulations 7 and 10) may apply to restore the Old UK GAAP position (where FRS 26 has not been adopted). Guidance on the application of this is available at CFM 57000 onwards. Note that where the forward contract is taken out as a hedge of qualifying expenditure, the amount of capital allowances is based on the amount of actual qualifying expenditure incurred (for example, translated at the spot rate at the date of that the expenditure is incurred) - see CA11750 Transitional adjustments may also arise - see Part B of this paper for commentary on this. 17.4 Net investment hedging (also known as the Cover method or SSAP 20 matching) Where an equity investment denominated in a foreign currency is hedged by a loan, SSAP 20 allows a company to re-translate the investment at the balance sheet date as if it were a monetary item. Exchange differences on the shares are taken to reserves. Exchange differences on the hedging loan are also taken to reserves, and offset against the gain or loss on the shares. Any excess on the loan that cannot be offset is taken to profit and loss account. This method of accounting is sometimes called the cover method or net investment hedging. S328 and S606 CTA 2009 ensure that exchange movements taken to reserves arent immediately brought into account. Potentially an adjustment would be made to any chargeable gain calculation where the shares are subsequently disposed of. There is no equivalent in Section 30 of FRS 102 for the cover method of hedging non-monetary assets. Hedge accounting is instead dealt with by Section 12 of FRS 102 (or IAS 39 where this option is taken) see chapter 4.6 above. However, under either Section 12 of FRS 102 or IAS 39, net investment hedging in respect of a shareholding in a subsidiary company is only permitted at consolidation. Where a company has a loan liability or a derivative to act as a hedge of the exchange risk from holding an investment in shares, regulations 3 and 4 of the Disregard Regulations (SI 20043256) would typically mean that the exchange gain or loss on the loan or derivative would be disregarded for tax. Potentially an adjustment would be made to any chargeable gain calculation where the shares are subsequently disposed of. For further details of net investment hedging see CFM 62000 onwards. 17.5 Permenent-as-equity debt The following commentary concerns permanent-as-equity loans, for example made by a parent to a subsidiary undertaking, which represent an arms length provision. Where the loan isnt undertaken on at arms length terms, then special rules apply for calculating the amount of exchange gains and losses to be taxed. See CFM38500 for further details. For companies that apply SSAP 20 its possible for permanent as equity loans to be treated as non-monetary items and be carried at historic rates on the balance sheet rather than be retranslated as at each period end. In such cases, the cumulative exchange movement would be reflected in any gain or loss on eventual disposal of the instrument. Tax would typically follow the accounting in this case. Alternatively, its possible that the permanent as equity loan is retranslated at the year end, but with exchange movements recognised through reserves. This might arise in respect of a standalone loan investment, or it may arise where the company has applied the cover method in respect of borrowings or a currency contract matching the loan investment. S328 and S606 CTA 2009 ensure that exchange movements taken to reserves arent immediately brought into account. The cumulative exchange gain or loss would typically be brought into account when the loan investment is subsequently disposed of. In both cases, accounting for such exchange differences is only possible where companies have adopted SSAP 20 (and not FRS 23) and isnt permitted for companies applying FRS 102. As a result, under FRS 102 such instruments will need to be retranslated at the year end, with exchange movements being recognised in profit or loss. In most cases such amounts will be brought into account for tax. There is a specific rule to deal with cases where a loan asset or derivative contract matches the companys own share capital see CFM62850 for further details. In addition, in December 2014 the Disregard Regulations were extended so to exclude exchange movements on certain instruments that were previously accounted for as permanent as equity debt under SSAP20. These exchange amounts are disregarded and brought back into account on disposal of the loan instrument (in line with the treatment under the old accounting). Transitional adjustments may arise where the debt was not previously retranslated at the year end, although the amendment to the Disregard Regulations may also apply to this transitional amount. See Part B of this paper for commentary on this. 18. Liabilities and Equity Accounts prepared in accordance with Old UK GAAP will apply the presentation and disclosure requirements of FRS 25 in respect of financial instruments and in particular liabilities and equity. FRS 102 contains comparable requirements in Section 22, Liabilities and Equity. Consequently on transition from Old UK GAAP to FRS 102 no changes are expected in respect of the classification or presentation of liabilities and equity that currently fall within the scope of FRS 25. However, while the classification and presentation may not change the subsequent measurement of such items may change on adoption of FRS 102. For example the accounting on issue of a compound financial instrument is comparable across Old UK GAAP (FRS 25) and FRS 102 (section 22). In all cases the issuer will be required to account for the debt and the equity components separately (see CFM21260 ). However, the issuer of such an instrument will need to consider the measurement requirements of Section 11 and 12 (or IAS 39) in respect of subsequent measurement of the debt component. Guidance on the taxation of hybrid and compound instruments in both issuer and holder is available in the HMRC Corporate Finance Manual. In particular, see: CFM37600 (Bifurcated instruments under the loan relationship rules) CFM50410. CFM50420. CFM50430 and CFM52500 (Bifurcated instruments under the derivative contract rules) CFM55200 (Holder of convertible or share-linked securities) CFM55400 (Issuer of convertible or share-linked securities) For further guidance on the transitional provisions applying to hybrid instruments see Part B of this paper. 19. Specialised activities FRS 102 section 34 includes specific guidance on a number of specialised activities such as service concession arrangements, agriculture and extractive industries. Such specialised activities arent addressed within this paper. PART B - Transitional adjustments (Old UK GAAP to FRS 102) This part of the paper provides a summary of the key accounting and tax considerations that arise on transition from Old UK GAAP to FRS 102. 20. Accounting In accounting terms transition to FRS 102 is addressed in Section 35 of FRS 102. On transition FRS 102 section 35 requires that the balance sheet presented in respect of the accounting transition date: recognises all assets and liabilities whose recognition is required by FRS 102 doesnt recognise assets and liabilities if FRS 102 doesnt permit such recognition reclassifies assets, liabilities and components of equity to ensure presentation is consistent with FRS 102 measures all recognised assets and liabilities in accordance with FRS 102 The transition date, for accounting purposes, is the first day of the earliest accounting period presented in the accounts. For example for entities preparing their accounts at 31 December 2015 the transition date will be 1 January 2014. FRS 102 contains certain transitional exceptions and exemptions to the above requirements. These arent repeated here in detail but cover areas such as business combinations, estimates, intangibles, investment property and service concession arrangements. However, even with such exceptions and exemptions its expected that on transition there may be a significant number of adjustments both to the carrying value of assets and liabilities recognised previously under Old UK GAAP and in terms of newly recognised assets and liabilities. For accounting purposes these adjustments will be made to the assets and liabilities as at the accounting transition date with a corresponding adjustment made directly to the opening PampL reserves. For trading profit Chapter 14 Part 3 CTA 2009 provide that where there is a change from one valid basis on which the profits of a trade are calculated to another valid basis (for example on a change of accounting policy), an adjustment must be calculated to ensure that business receipts will be taxed once and once only and deductions will be given once and once only. For Corporation Tax purposes, adjustments are treated as receipts or deductions in computing the trade profits. Details of the calculation are set out at BIM 34130 . 21. General trading The relevant legislation for companies is in CTA 2009 Chapter 14 Part 3. Section 180(4) reads: (4) A change of accounting policy includes, in particular (a) a change from using UK generally accepted accounting practice to using generally accepted accounting practice with respect to accounts prepared in accordance with international accounting standards, and (b) a change from using generally accepted accounting practice with respect to accounts prepared in accordance with international accounting standards to using UK generally accepted accounting practice. So while it details UK GAAP to IAS and vice versa, the key phrase is that a change of accounting policy includes in particular those 2 cases. While the change from Old UK GAAP to FRS 102 isnt listed its still included within the scope of this provision. For companies with property income sections 261-2 CTA 2009 deal with adjustment income or expenditure where the basis on which the profits are calculated changes. 22. Intangibles The relevant legislation is in CTA 2009 at Part 8, Chapter 15. Where there is a change of accounting policy in drawing up a companys accounts from one period of account to the next, and both those accounts are drawn up in accordance with GAAP in relation to those periods then the provisions of Chapter 15 will apply. No taxable credit or allowable debit is to be brought into account under Chapter 15 to the extent that its already brought into account by section 723 (revaluations), section 725 (reversal of accounting loss) or section 732 (reversal of accounting gain). See section 878 CTA 2009 Change in accounting value When there is a change of accounting policy its possible that there will be a difference between the accounting values recognised at the end of the earlier period and the opening balance in the later period for certain intangible fixed assets. Where such a difference arises and no section 730 election has been made section 872 treats an increase as a taxable credit, and a decrease as an allowable debit, arising at the start of the later accounting period. The amount of the debit or credit is the difference multiplied by the fraction tax written-down valueaccounting value, where both these values are those at the end of the earlier period. Section 872(5) caps the amount of any credit to the net amount of previous debits on the asset less previous credits on the asset. Chapter 15 also contains different rules to deal with a change of policy involving disaggregation or where the asset is subject to a fixed-rate writing down election under section 730. Primacy of other parts of Part 8 Section 878 contains provisions to ensure that where all or part of the difference is brought into account under other sections of Part 8 that part isnt brought into account again. The relevant other paragraphs are section 723 (gain on revaluation CIRD 13050 ), section 725 (reversal of accounting loss CIRD 13090 ) and section 732 (reversal of accounting gain CIRD 12560 ). Section 872 doesnt apply to a chargeable intangible asset in respect of which a fixed rate election has been made under section 720 (see CIRD 12905 ). 23. Financial instruments Transitional adjustments - general Adjustments on loan relationships as a result of changes in accounting policy can arise under 2 separate parts of the regime. Prior period adjustments In cases where a company stays within the same accounting framework, or otherwise doesnt restate its opening figures, the accounts will normally show a prior period adjustment (PPA ) either in reserves or in equity. For loan relationships section 308 ensures that this amount is brought into account for tax purposes where its taken to the statement on total recognised gains and losses (in Old UK GAAP ) or statement of changes in equity (in FRS 101, FRS 102 or IAS ). A transitional adjustment which takes the form of a PPA will also be adjusted for tax purposes by any relevant provision. For example, if the company changes the accounting treatment of a loan to a connected company so that its in future accounted in its accounts on a fair value basis, there will be a PPA reflecting the difference between the carrying value under an accrual method and fair value. However, s349 CTA 2009 requires the profits and losses on the asset continue to be brought into account for tax purposes as if the change to fair value accounting has not been made. Therefore the PPA is in this example ignored. No prior period adjustment In some cases there may be no PPA even though there is a change in accounting measurement for a particular instrument. For example, no PPA will be recognised where there is a change to the overall accounting framework and the opening figures have been restated. This will often be the case where a company adopts IAS. FRS 101 or FRS 102 for the first time. In these cases sections 315 to 319 CTA 2009 will apply. These calculate the transitional adjustment by comparing the opening accounting value in the current accounting period with the closing accounting value for the previous accounting period. Accounting carrying value is defined to mean the carrying value of the asset or liability as shown in the balance sheet of the company subject to adjustments for specific tax provisions which have the effect of changing the carrying value for tax purposes (for example, s349 CTA 2009 for connect party debt). The derivative contract regime has equivalent rules in sections 597 and 613 to 615 CTA 2009. The overall effect in either case is to ensure that no amount should fall out of account as a result of a change in accounting policy. Change of Accounting Practice Regulations In 2004 and 2005, the Government considered various representations about the impact of the transitional rules when a company moves from Old UK GAAP to either IAS or FRS 26. In view of the size of some of the known impacts, and the fact that many of the impacts could not be determined until companies made the calculations after the year end, the Government decided to defer the tax impact of all transitional adjustments. This deferral was given effect in Change of Accounting Practice (COAP ) Regulations (SI 20043271), which have been the subject of subsequent amendments. The COAP Regulations apply to most transitional adjustments arising in respect of loan relationships or derivative contracts from change in accounting practice. As such, the Regulations are applicable to transitions to FRS 101 and FRS 102 in the same way as they applied to transitions to IAS or FRS 26. In most cases, the effect of the Regulations is to spread the transitional adjustment over 10 years, starting with the first period in which the new accounting policy applies. A company has a loan with non-vanilla terms in an unconnected company which is due to be repaid in 5 years. Under Old UK GAAP it measures the loan on a historic cost basis. Under FRS 102 its required to measure the loan at fair value. On transition, the difference between the closing value for the previous period and opening value in the current period is to be brought into account, with the amount spread over a period of ten years. There are certain exclusions from the COAP Regulations. In these cases the COAP Regulations dont apply at all. This is likely to mean that the transitional adjustment will be brought into account in full on transition (ie subject to the normal rules). The main exclusions are for transitional adjustments in respect of: a loan relationship which comes to a natural end in the accounting period that the transition takes place because its repaid or redeemed on the date which is the latest date on which, under its terms, it falls to be repaid or redeemed an embedded derivative that is bifurcated out of a loan asset or liability described in the first bullet a derivative contract which hedges a loan asset or liability described in the first bullet A company has a designated a financial instrument as AFS with maturity in 6 months. Under Old UK GAAP it measures the loan and derivative on an historic cost basis. Under FRS 101 its required to measure the derivative at fair value. On transition, the difference between the closing value for the previous period and opening value in the current period is to be brought into account in full in the current period. The COAP Regulations also include provision for some further cases where transitional adjustments will never be brought into account. These specific issues are explained below, but are intended to ensure that the correct amounts are brought into account overall for loan relationships and derivative contracts. Transitional adjustment - specific issues (1) Convertible loans and asset-linked instruments (pre-2005) There are rules which grandfather the previous tax treatment for most convertible debt and asset-linked instruments issued before the companys first period of account beginning on or after 1 January 2005 (see CFM 37680 to 37710 for further details). The COAP Regulations (reg 3C(2)(a), reg 3C(2)(aa) and reg 3C(2)(f)) require that amounts that arise on transition in respect of such contracts are never brought into account. This ensures that there is continuity of treatment. (2) Embedded derivatives where the host instrument isnt a loan relationship Going forwards under FRS 102 (with the IAS 39 option) embedded derivatives in a contract are typically required to be bifurcated in the accounts. However, where section 616 CTA 2009 applies, the embedded derivative is treated as if it were closely related to the host contract and therefore not separated out. The COAP Regulations (reg 3C(2)(b)) requires that amounts that arise on the transition to FRS 102 on such contracts are never brought into account. This ensures that there is continuity of treatment. (3) Interest rate contracts in a hedging relationship (Reg 9 contracts) Under IAS. FRS 101 and FRS 102, derivative contracts will typically be measured at fair value in the companys accounts. Regulation 9 of the Disregard Regulations deals with interest rate contracts used for hedging. Amounts on such contracts are brought into account on an appropriate accruals basis. In effect, the tax treatment of such contracts under Old UK GAAP continues where regulation 9 of the Disregard Regulations applies. The COAP Regulations (reg 3C(2)(c)) means that no transitional adjustments arising on such contracts are to be brought into account under these Regulations. This ensures that there is continuity of treatment. The amounts will be brought into account under the Disregard Regulations in priority to the COAP Regulations. (4) Currency, commodity and debt contracts in a hedging relationship (Regs 7 or 8 contracts) Under IAS. FRS 101 and FRS 102, derivative contracts will typically be measured at fair value in the companys accounts. Regulations 7 and 8 of the Disregard Regulations deals with currency, commodity and debt contracts used to hedge a forecast transaction or firm commitment. Amounts on such contracts are brought into account under regulation 10. Generally, the effect of these regulations is that the tax treatment of such contracts follows the Old UK GAAP accounting treatment. The Disregard Regulations (regs 7(1) and 8(1)) provide that no transitional adjustments arising on such contracts are to be brought into account these amounts are disregarded. This ensures that there is continuity of treatment the amounts will subsequently be brought into account under the Disregard Regulations in priority to the COAP Regulations. (5) Designated cashflow hedges (Reg 9A contracts) Under IAS. FRS 101 and FRS 102, derivative contracts will typically be measured at fair value in the companys accounts. Under a designated cash flow hedge, the company will recognise certain movements in the fair value through other comprehensive income, and maintained as part of a cash flow hedging reserve. Regulation 9A will apply in respect of designated cash flow hedges, unless the instrument is within regulation 7, 8 or 9 of the Disregard Regulations. The effect of this regulation is to disregard for tax purposes the amounts recognised in the statement of equity (as items of other comprehensive income) until they are recycled to the income statement. The COAP Regulations (reg 3C(2)(e)) exempts the spreading on transition amounts to the extent that they hedge future cashflows. Its aimed at the opening adjustments to the cashflow hedge element of shareholders equity reserves. These amounts will subsequently be recycled through the income statement and so ensures continuity of treatment. (6) Contract rate accounting Under Old UK GAAP where FRS 23 (and FRS 26) doesnt apply, a company can translate a foreign currency amount on a monetary item (typically a money debt or a loan relationship) using the rate implicit in a contract (typically a derivative contract). This isnt permitted under IAS. FRS 101 or FRS 102 which all require the foreign currency amount to be translated using the spot exchange rate. Typically the derivative contract will be required to be recognised separately and measured at fair value. Potentially the company may apply hedge accounting in respect of the hedging relationship in its accounts. Where regulation 9 of the Disregard Regulations applies, any adjustment to the derivative contract is effectively ignored see (3) above. Where this happens, the COAP Regulations (reg 3C(2)(d)) disregards any loan relationship adjustment as well. (7) Reversal of previous exchange gains and losses Very occasionally an issue can arise where transitional adjustments represent the reversal of previous exchange gains and losses, typically where the company treats the loan as an equity instrument. The COAP Regulations (reg 3C(2)(ca) and reg 3C(2)(da)) provide that such transitional adjustments arent to be brought into account to the extent that those previous exchange gains or losses had been disregarded for tax. (8) Permanent as equity debt Under Old UK GAAP where FRS 23 (and FRS 26) doesnt apply, a company can translate permanent as equity debt at its historic cost. This isnt permitted under IAS. FRS 101 or FRS 102 which all require the foreign currency amount to be translated using the spot exchange rate. In certain cases, regulation 12A of the Disregard Regulation can apply to exclude the transitional adjustments on permanent as equity debt. (9) Modification and replacement of distress debt Under Old UK GAAP where FRS 26 doesnt apply, where debt is restructured or have its terms modified, no gain or loss would be recognised in the accounts. In contrast, FRS 102 requires that where modification is considered substantial the original debt instrument will be derecognised and the new instrument recognised at its fair value. In certain cases where the company is in financial distress, the COAP Regulations (reg 3C(2)(g)) exempts the credits arising on transition, together with any debits representing the reversal of these amounts. For further details of the treatment of transitional adjustments for loan relationships and derivative contracts see CFM76000 onwards. Defined, for purposes of this paper only, on page 3 See FRS102 11.7 and 12.3 for comprehensive list Note that where the convertible debt is a compound financial instrument the accounting in the issuer will also be determined by reference to Section 22 of FRS 102 The appendix to UITF Abstract 47 provides some further explanation of these points IAS 39 has a similar requirement for companies that have chosen the IAS 39 option If payment terms are deferred beyond normal credit terms, the cost is determined by reference to the present value of the future payments