Private Irish companies are set to discard UK accounting rules and adopt International accounting rules – so called IFRS for SME. Planning for the change is essential if companies are to continue to have access to credit and to minimise a corporation tax bill. A newly published guide, produced by ACCA (Association of Chartered Certified Accountants) identifies the major accounting and tax differences and the opportunities the change will bring. The new rules will apply to companies as large as Dunnes Stores and Quinn Insurance and as small as the companies operating the local corner shop. Quoted companies already use IFRS, but so called “Non public Interest” or unquoted companies will have to adapt IFRS for SME in 2012/2013.
Aidan Clifford, ACCA Ireland’s Advisory Services Manager, said “It is important for companies to identify where the change might be an issue for their business at the earliest opportunity. Performance related pay and bank loan covenants being breached could be an issue simply because of the different way of measuring profits and assets and liabilities. ACCA’s publication identifies the accounting and taxation implications of the change and whether profits would be higher or lower under IFRS for SME for different types of businesses.”
Reported profits will be different under the new rules, for some businesses it will be higher and some lower; it depends on what business the company is undertaking. For example, a company with a lot of intellectual property will have a different affect on their profits to a property owning company. Assets and liabilities will be measured differently and some new assets and liabilities will appear on an IFRS for SME balance sheet that were not there under UK rules. For example, property may be re-valued to market value under UK rules but must stay at cost under IFRS for SME; some financial instruments such as derivatives were “off balance sheet” under UK rules but will be included at fair value under IFRS for SME. The former example will tend to show lower building valuations and lower depreciation and higher profits under IFRS for SME and the latter example will accelerate profits in the short term and reduce long term profits under IFRS for SME.
Mr Clifford added “Most commercial bank loans come with conditions attached, called covenants. Breaching any covenant and the loan becomes immediately repayable. When they were legally signed up to, the covenants were measured based on UK rules. When you re-measure under IFRS for SME rules a company might have breached a covenant, and the bank can legally withdraw the loan facility”.
Copy of The new Irish GAAP: how would the numbers look? publication is available at www.accaglobal.com/ifrsforsme