Accountancy accrual

Gill Gittings

I have been told today that it is technically incorrect to accrue for year end accounts and tax by a HMRC accountant.

Has anyone else come across this. They say they could challenge the accrual??

Gill.

Bluewednesday

It's part of the matching concept, an accountancy accrual is absolutely the correct thing to do and I've never seen or had it challenged.

I would like to see their reasons why they would challenge it.

AK002

Never heard that before lol!

deanshepherd

I know a number of accountants that no longer accrue their fee - I think the theory was doing the rounds on the lecture circuit last year.

I don't recall the exact argument but it was something along the lines of there being no certainty over the transfer of economic benefits at the balance sheet date.

I must admit to agreeing with the theory, certainly if accruing the entire fee. I have not, however, managed to change my ways in practice yet. Old habits die hard I guess!

Steve Collings

I have not come across this in practice but I heard a similar story where the HMRC Accountants are going by the provisions in the Statement of Principles which basically (as Dean S points out) says that a liability is not present at the balance sheet date in respect of the accountancy accrual as the directors could prepare the financial statements themselves rather than appointing a firm, so (technically) it's more an 'intention' rather than an 'obligation' on the part of the directors/sole trader/partners etc.

I doubt there'll be very many cases but I suspect there will be some tax inspectors who do try to disallow such an accrual.

Kind regards
Steve

Hasan.Ahmet

Accrual & Provision

Accruals and provisons are not the same as we all know.
If the accountant has accrued an income as per UITF 40 then the business would have
every reason to accrue for accountancy charges. This would mean that the work has or partly been done and all that's waited is the invoice.
If you wish to make a provision you would be guided by the principles of FRS 12.

deanshepherd

Hasan.Ahmet wrote: »

This would mean that the work has or partly been done and all that's waited is the invoice.

Playing Devil's Advocate for the moment.. I would suggest that this is never the case.

Yes, there will be some unbilled work at the year end which should be accrued. However, most of the preparation time for end of year accounts will take place long after the year end. This is, presumably, where HMRC have an issue.

Hasan.Ahmet

Yes, there will be some unbilled work at the year end which should be accrued. However, most of the preparation time for end of year accounts will take place long after the year end. This is, presumably, where HMRC have an issue.

AGREED. Repeat of what I said I think.
I don't know where "This" "which is never the case" comes from.
The work done I refer to is what should be accrued for and not necessarily related to work associated to year end though it's not unknown for some work relating to year end to have been done before the year end finals are drafted.
Hope I'm clearer.

deanshepherd

Hasan, when using quotation marks it helps not to then change the wording within.

You said "..all that's waited is the invoice."

I still say "..that this is never the case."

i.e. I think the original poster is referring to the accrual of accountancy fees relating to the bulk of the work completed post-year end, rather than any unbilled work done during the year - on this point we are definitely in agreement.

Hasan.Ahmet

You said "..all that's waited is the invoice."

Agreed again!.
Put like that, it may be interpreted as if it meant that the work relating to all the accounts for the year had been done and charges should have been accrued in full and all that's waited for is the invoice for all the charges for accounting for that year.

Wrong interpretation though .
It meant accruals are for the work that's already been done because all that's waited for is the invoice.
In this instant logic also dictates all work cannot have been done before the year ends!.

deanshepherd

I give up.

Hasan.Ahmet

Same here.