Welcome to Query Of The Week
Welcome to this week’s Query Of The Week. Each week our technical team respond to a huge number of client queries and in this segment, we share with you the most common questions that keep coming up time and time again.
In this week’s Query Of The Week, John Murphy discusses what your disclosure obligations are with regard to related parties under company Law, and how this ties into Section 33 of FRS 102.
Accounting for & Disclosures-Related Parties Under FRS 102 (FRS102 Bootcamp 3)
If this Query Of The Week was of interest to you, you will also be interested in our Accounting for & Disclosures-Related Parties Under FRS 102 (FRS102 Bootcamp 3) online CPD course.
Full details on this online CPD Course can be found below:
|CPD Allocation||1 Hour|
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|Presenter||John Murphy – OmniPro|
Query Of The Week – Video Transcript
(Please note that this is a direct unedited transcript of the spoken word as recorded on the video)
Hello and welcome to this Query of the week. My name is John Murphy. I work here in Omnipro practice support department and OmniPro Tax Legal departments here in OmniPro. So this weeks query came in when we were advising clients on the, on the financial reporting disclosures under FRS 102 with regard to a transaction where there is a company reconstruction.
Just to explain in this particular example there was a transfer of a business trade from one company to another. This was from one company into a new company owned by the same individuals so there was a transfer from one company into a new company owned by the same individuals but they weren’t in the same group.
So the question arose what sort of disclosures do I need to put into my financial statements as a result of this transaction.
So reminder again. So there was one company which had the business and investment assets but the individuals wanted to separate out business trade and assets from the investment asset.
They transferred out the business out of the company into a new company owned by the shareholders of the first-mentioned company and the question was what disclosures do we need to have in the accounts which the business was transferred out from and the accounts of the company which the business was transferred into.
So I suppose to deal with that when we look in FRS 102 and in the company law of which Section 33 of FRS 102 states where there are transactions between related parties well then you need to disclose those transactions and give the details of those transactions from that perspective. S1A of FRS 102 will also say that.
However more specifically Companies Acts of which S1A is being derived from the small companies regime of companies act which also applies to the medium-large company is Section 309 which requires you to give details of transactions with companies which directors are connected with and which are under common control of directors
So, in this case, both of the directors are the same directors in each company as there is a material interest, they both own 100% of the boards of the companies which have transactions between them. So section 309 requires disclosure of the details of the transactions, the nature of the transaction, and who it was with. So that’s Section 1A of FRS 102 and companies act and full FRS 102 section 33 requires similar disclosures.
So in this example, I suppose in the company which is transferring the business out, you would have a note stating that during the year the company transfers this XYZ business to another company which is owned by the directors of the company. Details of the assets that were transferred out, on X date were cash, debtors, fixed assets, stock creditors etc. whatever they had to give them. Then you would explain, these shares were issued in return for transferring the undertaking.
Likewise in the company that received it. You would have a similar disclosure as required by section 33, Section 1A and Section 309 of Companies Act 2014 dealing with the facts that on X date (being whatever X date the company acquired the trade up from XYZ) the company acquired the trade from XYZ in return for the shares and details of the assets transferred were cash, debtors, fixed assets, stock creditors etc.
I suppose the reason why company law does need to be disclosed this is because Section 220 of company law deals with connected persons and so all disclosures of directors transactions and section 309 deals with disclosures of the directors transactions which includes connected persons, Connected persons in Section 220 includes a company where transactions are entered into with a company which the director has 50% or more of an interest in the ordinary share capital. So in this example, both shareholders are the same and same directors, therefore, that is why the disclosure is made.
Just while we are on this point on disclosures and an important point, (which is somehow a lot of times missed), if your directors remuneration transactions includes amounts paid to children, if there are transactions to be paid to the directors children, spouse, partner is a partner in a partnership well then they would need to be disclosed in that note as well. So it’s just some, sometimes, you know, when you’re looking at files having spoken to the lads who do the monitoring visits, it’s the area the files get caught in these types of related party disclosures.