UK - The Company Law Committee of the Institute of Chartered Accountants in England and Wales (ICAEW) has published a statement on the implications of the transitional disclosures of FRS17 on the profits available for distribution by companies.
The committee concludes that a company does not have to take account of the consequences of implementing an accounting standard in determining the lawfulness of a distribution until the accounting standard is adopted in the relevant accounts.
“Adopted in the accounts does not include transitional disclosures though it would, of course, include early adoption cases.
The restriction will apply to any interim dividend in the financial year in which FRS17 is adopted fully.
The ICAEW statement has been reviewed by leading Counsel who confirmed that it is consistent with the law at January 31, 2002.
FRS17 comes fully into effect for accounting periods ending on or after 22 June 22, 2003. However, certain disclosures are required for all periods ending on or after June 22, 2001. In the first two financial years ending on or after June 22, 2001, companies will not be obliged to adopt the recognition requirements, but figures calculated on an FRS17 basis will have to be calculated and disclosed by way of note.
Whether or not it is lawful to make a distribution depends on statute and common law. The statutory position is that, as regards Part VIII of the Companies Act 1985, a company does not have to take account of the consequences of implementing an accounting standard in determining the lawfulness of a distribution until the accounting standard is adopted in the relevant accounts (as defined in section 270(3)) used for that distribution.
A deficit arising in respect of a defined benefit scheme shown only by way of note under FRS17 (that is, not included in the amounts recognised on the face of the company’s balance sheet) would not fall to be treated as a liability or provision for the purpose of section 270(2)(a) or (b) and accordingly is not taken into account in determining the profits available for distribution under the statutory rules.
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