Common disclosure errors

Over the years financial statements have become increasingly longer due to the more extensive disclosure notes that are needed to comply with both the Companies Act 2006 and many complicated accounting standards.

It is understandable why many firms (including sole practitioners) may get a disclosure note incorrect, or even miss it completely and this article aims to flag up 10 of the most common disclosures that are frequently missed or included in the financial statements incorrectly.

1. Charitable donations

Since the inception of the Companies Act 2006, it is a requirement that charitable donations that exceed £2,000 are disclosed within the report of the directors, together with the purpose of the donation and a statement of the amount given. Remember, the £2,000 benchmark refers to donations in totality; so even if all donations given in the accounting period are less than £2,000, if they exceed £2,000 in aggregate they will still require disclosure in the report of the directors.

2. Directors retirement benefits

If the company pays into a pension scheme (such as a defined contribution pension scheme) then the financial statements must disclose the number of directors to whom retirement benefits are accruing (including a comparative number). The same applies if the company pays into a defined benefit pension scheme.

3. Government grants

If a company receives any government grants, or government assistance, the financial statements should disclose the effects of grants on the results of the period and/or the financial position of the entity. If the company received government assistance and this assistance is material to the financial statements, the nature of this assistance together with the effects of this assistance on the results of the period should be disclosed (where the effects can be quantified).

4. Debtors due after more than one year

Quite often forgotten about because it is more common to have creditors falling due after one year that are disclosed separately both on the face of the balance sheet and also in the notes to the financial statements. However, UITF Abstract 4 Presentation of long-term debtors in current assets recognises that while in many cases it is satisfactory to disclose long-term debtors in the notes to the financial statements, it is important to be aware that if the amount of long-term debtors is so material in the context of the total net current assets, disclosure should be made on the face of the balance sheet of those long-term debtors because the Urgent Issues Task Force consider that not to make such disclosure on the face of the balance sheet would lead readers to misinterpret the financial statements.

5. Goodwill

Generally the amortisation policy for goodwill is disclosed within the notes to the financial statements, but what is often forgotten about is the reason for the directors choosing that period of amortisation. Paragraph 6.13 to the FRSSE (effective April 2008) specifically requires the reason for choosing that period of amortisation.

6. Assets carried under the revaluation model

For assets which are carried under the revaluation model, or if the market values for such assets have been disclosed within the notes to the financial statements, the financial statements must disclose the amount of tax which would be payable (or recoverable) if the assets were sold at the values shown in the financial statements (see paragraph 9.12 of the FRSSE (effective April 2008)).

7. Operating leases

When a client has operating leases (in particular where they rent premises), disclosure should be made in the financial statements of the operating leases falling due within one year, the second to fifth year and more than five years, split as follows:

8. Recognised gains and losses

Where the only recognised gains and losses are those which are included within the profit and loss account, there is no need to make a statement to this effect on the face of the profit and loss account (see paragraph 5.1 to the FRSSE (effective April 2008)).

9. Client has listed investments

If the client has listed shares which are held as a current asset investment, disclosure should be made of:

• The aggregate market value of those investments (if market value differs from the balance sheet amount)
• Both the market value and the stock exchange value of any investments, of which market value is taken as being higher than stock exchange value

10. Client is a subsidiary

If the client is a subsidiary company, the FRSSE (effective April 2008) requires the following information (if any) in respect of the client’s ultimate parent company:

• The name of the ultimate parent company
• If the ultimate parent company is incorporated outside of the UK, the country of incorporation (if known to the directors)

Category: Accounting and standards