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by Various 02 Apr 2003 Topic: Technical update

FASB The FASB has issued an exposure draft on accounting for real estate time-sharing transactions, concurrent with the issuance of a Proposed Statement of Position on the same topic by the Accounting Standards Executive Committee (AcSEC) of the American Institute of Certified Public Accountants. The exposure draft amends FASB Statements No. 66 and 67. FASB Statement No. 66, Accounting for Sales of Real Estate, was issued in 1982 and adopted the specialised profit recognition principles in certain AICPA Industry Accounting Guides and AICPA Statements of Position. Statement 66 provides limited guidance for time-sharing transactions. After Statement 66 was issued, extensive changes in the methods used by the time-sharing industry to offer its products resulted in divergent accounting practices. Those divergent practices centred around revenue recognition, recording of credit losses and the treatment of selling costs. In response, AcSEC developed the proposed SOP which applies to all time-sharing transactions. The proposed FASB Statement would amend Statement 66 and Statement 67 to exclude time-sharing transactions from the scope of those statements should the proposed SOP be issued as final. Both proposals would be effective for financial statements issued for fiscal years beginning after 15 June 2004, although earlier application would be encouraged. The proposals can be accessed from either the FASB website (www.fasb.org) or the AICPA website (www.aicpa.org). The comment periods conclude on 30 April 2003. IASB The first official Dutch translation of International Financial Reporting Standards became available on 28 February. The translation was made under the auspices of the International Accounting Standards Committee Foundation (IASCF) and reviewed in a comprehensive process which involved a committee of accounting experts, including Dutch and Belgian representatives. The translation was made in preparation for the implementation of International Accounting Standards in the EU from 1 January 2005. Professor Dr RGA Vergoossen, chairman of the review committee, handed over the first two copies of the publication to Professor Dr J van Helleman RA (chairman of the European Financial Reporting Advisory Group) and to Professor Karel Van Hulle (Head of Unit, Directorate General Internal Market, European Commission). The presentation took place during a meeting of the Federation des Experts Comptables Europeens (FEE). IFAD The third in a series of surveys, conducted by the large accounting firms to encourage convergence of national accounting standards with international standards, has been completed. GAAP Convergence 2002 provides an overview of country plans, as of December 2002, to promote and achieve convergence with International Financial Reporting Standards (IFRS). The full report is available on the website of the International Forum on Accountancy Development (www.ifad.net). The findings, based on surveys in 59 countries, show that over 90% of the surveyed countries intend to converge with IFRS and indicate that the IASB is viewed as the appropriate body to develop a global accounting language. The majority of the surveyed countries currently have formally stated their intention to converge. In many instances, the country initially will require only listed companies to adopt IFRS. In other countries, national standard setters have an agenda designed to remove existing differences between IFRS and their national GAAP, covering listed and unlisted companies. Some countries are pursuing a combination of these two strategies. The survey found that obstacles to convergence still exist, however. There are disagreements in some countries with the requirements of certain significant IFRS (such as financial instruments and other standards based on fair value accounting). In addition, there is tension between the capital markets orientation of IFRS and the tax-driven nature of some national accounting regimes. The complicated nature of some IFRS is perceived as a barrier to convergence in about half of the surveyed countries. Consequently, countries may be limiting implementation of IFRS to listed companies. The survey reports suggest this may result in a widening of the gap between IFRS and the national accounting standards utilised by small and medium sized entities (SMEs). The surveys indicate that significant change management challenges lie ahead. The coverage of IFRS in the education and training of professional accountants needs to be increased. Timely national language translations of IFRS, including interpretations, need to be made available. The report suggests key areas for action. Governments should establish formal convergence plans that include target dates for implementation and address impediments to convergence (for example, the link between financial accounting and tax legislation). In addition, regulators should promote convergence of national standards with IFRS, set up efficient and effective enforcement mechanisms to increase the consistency and quality of application of IFRS and support the International Financial Reporting Interpretations Committee (IFRIC) and the IASB as the sole clearinghouse for interpretation of IFRS. National standard setters should decide on a strategy and timetable for achieving convergence, develop an active standard setting agenda aimed at eliminating existing differences with IFRS and actively provide feedback to the IASB standard setting process. The IASB should address concerns about the complexity and operational practicality of IFRS, prioritise the SME project as an agenda item and oversee and authorise translations of IFRS in various languages. Preparers should actively participate in the standard setting process, in particular to identify practical application concerns, as well as providing IFRS training for staff and managers, including those in non-financial roles. IFAC The Financial and Management Accounting Committee (FMAC) has released a new publication designed to educate management, accountants and other business decision-makers about a wide range of issues that impact the quality of earnings. The collection of articles, entitled Quality of Earnings Case Study Collection, was first published by the American Institute of Certified Public Accountants (AICPA). The collection includes more than a dozen articles addressing a wide range of issues such as capital market expectations and valuations, estimates/methods, revenue recognition, business combinations, and working capital management. The case studies are designed to put the reader in the seat of executives making decisions that could impact the future of their company, as well as their own and their employees' livelihoods. They raise a number of real-life ethical, management, and accounting issues and show how they were resolved. Quality of Earnings Case Study Collection is available in both a print and electronic version. It may be accessed free of charge by going to the IFAC on-line bookstore (www.ifac.org/store) and downloading it from the FMAC section of the store. Print copies may be ordered through the on-line store or by calling IFAC at +1 212 286 9344, ext. 103. IFAC has also issued a paper, Modernisation of Government Accounting in France, highlighting some of the key arguments that influenced the decision of the French Government to move from the current system to an accrual basis for financial reporting. The paper traces the development and implementation of accrual accounting since 1999 in the central government financial statements and the evolution of the public sector information system and institutional arrangements to adapt to the new system. It emphasises that the modernisation of the government's financial information system is being undertaken with the primary goal of 'making government transactions more transparent'. Occasional Paper 6, Modernisation of Government Accounting in France, may be downloaded from the IFAC website (www.ifac.org/store). IFAC has also released the 2003 edition of its Handbook of International Auditing, Assurance, and Ethics Pronouncements, containing all pronouncements issued as of 31 December 2002. These pronouncements are designed to be sufficiently specific, understandable, comprehensive, and definitive to influence and guide the judgments of auditors worldwide in carrying out their work. International Standards on Auditing (ISAs), developed by the International Auditing and Assurance Standards Board (IAASB), and IFAC's Code of Ethics for Professional Accountants, establish benchmarks for the performance of high quality audits. The handbook includes IFAC's new rules on independence for assurance engagements, a new standard on Auditing Fair Value Measurements and Disclosures, and new International Auditing Practice Statements (IAPSs) addressing audits of banks and e-commerce. A print version of the handbook may be purchased for $100 plus shipping (discounts apply to students, teachers, and developing nations) by contacting Damarys Gil at +1 212 286 9344, ext. 103 or e-mailing her at damarysgil@ifac.org. A free CD-ROM containing the international auditing, assurance, and ethics pronouncements is included with the handbook. The handbook, and all pronouncements contained in it, may be accessed free of charge by going to www.ifac.org/store. FEE The Federation des Experts Comptables Europeens (FEE) has completed a survey examining the conditions for entry into the accounting and auditing profession across Europe, and the extent of free movement of professionals between member states of the European Union. The survey found that fundamental requirements for admission to the accounting and auditing profession are largely convergent in Europe. In all countries surveyed, including those not yet members of the EU, requirements for entry constitute a combination of the three major requirements of the Eighth EU Directive on Qualification of Statutory Auditors: education programmes, experience and examination. In terms of the free movement of professionals, the survey found that all EU member states recognise the professional qualifications delivered in the country of origin, but require an aptitude test. In most cases this test is limited to the knowledge of local laws and regulations. FEE believes the system is working well and does not constitute an unnecessary barrier to free movement. The publication, Admission To The Profession Of Accountant and Auditor - A Comparative Study, can be downloaded free of charge from the FEE website (www.fee.be). UK Financial reporting Exposure draft The ASB has published an exposure draft on an Application Note to FRS 5, Reporting the Substance of Transactions. The proposed Application Note sets out the basic principles of revenue recognition and provides specific guidance on five types of transaction which give rise to turnover and have been subject to differing interpretations in practice. These are: long term contractual performance separation and linking of contractual arrangements bill and hold arrangements sales with right of return, and presentation of turnover as principal or as agent. The intention is to ensure that entities report turnover in accordance with the substance of their contractual arrangements with customers, and at the point at which their performance entitles them to recognise either an increase in assets or a decrease in liabilities. ASB chairman, Mary Keegan, explained that the Application Note is an interim step, pending the development of a replacement for the existing international standard on revenue, IAS 18. Comments on the exposure draft are requested by 30 May. Employment law Transfer of undertakings The Government has announced that it intends to amend the rules on the transfer of undertakings. A public consultation on draft revisions to TUPE will be followed by new regulations, expected to come into force in spring 2004. The reforms will increase the transparency of the transfer process by requiring a transferor to notify a transferee of the employment liabilities that will transfer. The circumstances in which employers can lawfully negotiate transfer-related changes to contracts of employment will be clarified. The application of TUPE to insolvent businesses will also be made more flexible, with the aim of improving the prospects of rescue in the event of insolvency. Final warnings The Employment Appeal Tribunal has ruled, in Stanley Cole (Wainfleet) Ltd v Sheridan, that the unjustified imposition of a final written warning for misconduct can amount to a constructive unfair dismissal. So, if an employee is penalised disproportionately for a minor offence, he or she may be able to leave the job and claim compensation. Injury to feelings The Court of Appeal has issued guidelines on compensation in discriminatory cases for 'injury to feelings'. In Vento v Chief Constable of West Yorkshire Police (No. 2), the Court of Appeal said that an award for compensation should fall within one of three bands. The top band, covering the most serious cases, such as where there has been a lengthy campaign of discriminatory harassment, should normally be between £15,000 and £25,000. A middle band of between £5,000 and £15,000 should be used for serious cases which do not merit an award in the highest band. Awards of between £500 and £5,000 are appropriate for less serious cases - for instance, where the act of discrimination is a 'one-off' incident. Awards of costs There has been a trend in the last couple of years for employment tribunals to award costs more regularly against parties who persist with claims that lack merit. However, the Court of Appeal said in Gee v Shell UK Ltd, that a tribunal should only issue a costs warning where there is a 'real risk' that an order for costs will be made against an unsuccessful party at the end of the case. New disability legislation The Government will publish a draft Disability Bill later this year, which it believes will significantly extend the rights of disabled people. Details have not yet been published, but the definition of 'disability' is expected to be broadened substantially and a duty may perhaps be imposed on public sector bodies to promote disability equality. ACAS The Government has announced that fixed-term periods for conciliating employment tribunal cases will be proposed in a forthcoming consultation document. ACAS has expressed concern that this could lead to a reduction in the success rate of settling cases by way of conciliation, accompanied by a rise in the number of cases that go as far as the tribunal itself. Much will depend on whether the fixed term period proposed is realistic. Meanwhile, take-up of arbitration, with the assistance of ACAS, of unfair dismissal claims remains negligible. Finally, ACAS has announced a new national helpline number: 08457 474747. For more details, see www.acas.org.uk. Flexible working The Flexible Working (Procedural Requirements) Regulations 2002 came into force on 6 February 2003. They set out the detail of the process by which a qualifying employee can apply for flexible working. Once a change of terms of employment has been agreed with the employer, it will become permanent. Employers may refuse an application, but only on one of nine specified grounds, e.g. because of the burden of additional costs. Taxation SA returns deadline The Inland Revenue has confirmed that penalties will not be charged in respect of returns which reached the department by 1 February. It has also recognised an obvious need and confirms that it will calculate tax on returns received after 30 September, but cannot guarantee to do so before the payment deadline. Artificial schemes In a recent speech, the chairman of the Board of Inland Revenue, Nick Montagu, said that it would scrutinise artificial anti avoidance schemes carefully to see whether they involve dishonesty and warrant prosecution. This is completely acceptable of course, provided it does not lead to artificial schemes as such being regarded as fraudulent. Childcare proposals A consultation document has been issued which proposes some extension of tax-free childcare facilities. Nurseries would not have to be under the control of employers and tax exempt childcare vouchers would be possible. The news is not all good. Except in cases where the facilities are provided on the employer's premises, a limit of £50 per week is proposed. Double taxation agreements Agreements between the UK and Taiwan and the UK and South Africa have now entered into force. Corporation tax interest rates The rate on underpaid instalments has been reduced from 5% to 4.75%. New publications Update No. 136 by the Inland Revenue, Savings, Pensions and Share Schemes Groups, has been published. From 30 November 2003 updates and amendments will only be published on the Internet. The mailing list has now been closed. Company directors extradited for tax fraud A company director who was originally charged with tax fraud in 1996 and fled to Spain was extradited to the UK in 2002. He pleaded guilty to conspiracy to defraud the Inland Revenue and was jailed for 21 months. Two co-conspirators were found guilty and sentenced in 1996. A company operated by the defendants had used false invoices and provided false accounting information. The total tax lost was calculated at more than £2m. Confiscation appeal In a recent tax fraud case, the taxpayer had diverted funds from his company into a private bank account and the Inland Revenue had obtained a confiscation order for the whole of the diverted funds amounting to £1,068,441. The taxpayer appealed on the grounds that the order should have been only for the tax and interest lost amounting to £450,398. The appeal court held that the full amount as ordered was properly payable. Pension scheme cheats In a recent case, two individuals pleaded guilty to cheating the Public Revenue of a sum in excess of £1m. They had obtained four dormant companies holding Pension Schemes Office approval certificates and advertised themselves as able to access funds locked in occupational pension funds. Their clients were made fictional employees of one of the dormant companies, which then applied for a transfer of the pension funds. 20% of the sum transferred was retained by the guilty individuals and the balance paid over to their clients. Friendly societies SI No. 23/2003 modifies the rules in FA 2003 relating to life assurance companies, so that they apply appropriately to Friendly Societies. National insurance contributions The social security (Contributions Amendments) regulations in SI 193/2003 amend the principle NI regulations to take account of the 1% increase in NI contributions made by the National Insurance Contributions Act 2002. The new regulations are effective from 6 April 2002. E filing regulations The Income and Corporation Taxes (Electronic Communications) Regulations in SI 282/2003 came into force on 5 March 2003. IRC v Piacentini and another In this case, a receiver appointed to realise a taxpayer's assets to satisfy a confiscation order was held not to be chargeable to income tax or capital gains tax in respect of the realisation. The liability remained that of the taxpayer. Warner v Prior A supply teacher sought to claim her travelling expenses from home to school on the basis that she had two places of employment. The school at which she worked and her home where she did work such as marking, writing reports and preparing lessons. The special commissioner, John Avery Jones, found that she did in fact have two places of work but was not entitled to the cost of travelling between them, because her secondary place of work was dictated by where she lived and not by the requirements of the job itself. VAT Climate Change Levy: new exemptions for certain non-fuel use of taxable commodities Customs & Excise has published an Extra Statutory Concession (ESC) exempting further non-fuel uses of taxable commodities from Climate Change Levy (CCL). These new exemptions are in addition to those already contained in the Climate Change Levy (Use as Fuel) Regulations 2001 (SI 2001/1138). The new regulations will not come into force until later in the year. However, from 29 January 2003 Customs & Excise has commenced, by concession, treating those further non-fuel uses (specified below) as if they were already specified under the non-fuel use exemption. Customs invites applications reclaiming levy already paid in respect of the new exemptions. The newly exempt non-fuel uses are: coal, coke and natural gas used as chemical reductants in the blast furnace production of zinc and other non-ferrous metals liquid propane used in the production of ethylene where heat is provided either by combustion of the waste products or from another source coal and coke used in the recarburising of iron and steel natural gas used purely as a feedstock in the production of carbon black Liquefied petroleum gas used as feedstock in the cracking process to produce lower olefins lower olefins used as a feedstock for conversion by chemical processes, and coke used in the manufacture of titanium dioxide by the chloride process. The full text of the concession is available from the CCL site. Where a supply of a taxable commodity has already been made in respect of one of the newly exempt non-fuel uses, and the levy has been accounted for, a refund of the amount paid by the consumer can be claimed by application to Customs & Excise. Consumers of taxable commodities can apply for a refund of levy already paid in respect of the new exemptions by completing form CCL 200X, available from the Customs & Excise National Advice Service (0845 010 9000). Claims should be submitted with the supporting evidence required in accordance with the instructions on the application form. Any claim can be backdated to the introduction of the tax on 1 April 2001. The ESC will be withdrawn on 30 June 2003. After this date claims for refunds of levy will not be considered. VAT liability of personally administered drugs This sets out Customs' policy on the VAT liability of drugs and appliances (such as vaccines) that are personally administered to a patient by a GP, or by a health professional working under the professional and clinical supervision of a GP. It follows a judgment by the Court of Appeal, in the case of Dr Beynon and Partners. The Court of Appeal has ruled that when a 'dispensing doctor' personally administers drugs to a patient (for example, by injection), the supply and administration of the drugs is separate for VAT purposes from the doctor's VAT exempt services of medical consultation, diagnosis and prescription. When the drug is personally administered to a patient to whom the GP is authorised, or required, by the NHS to provide pharmaceutical services, NHS payments for the supply and personal administration of the drug are zero-rated. Customs has sought leave to appeal against this decision. Medical services provided by GPs are exempt from VAT, and therefore most GP practices are not VAT registered. All GPs use medicines in the course of medical care and treatment of patients - typically in the form of 'injectables' (such as vaccines) or in emergencies. Some GPs (dispensing doctors) are also authorised or required by the NHS to provide pharmaceutical services ' that is, to supply 'take-away' drugs such as tablets - to specified patients. When a dispensing doctor supplies 'take-away' drugs to a patient, the drugs are separate from his or her VAT-exempt medical services. When supplied under NHS arrangements by which the doctor provides pharmaceutical services, the drugs are zero-rated; otherwise, VAT is chargeable. The Court of Appeal judgment has no impact on the VAT treatment of any supplies of 'take-away' drugs by doctors. Customs considers that the effect of the Court of Appeal judgment is that payments received by GPs for personally administered drugs or appliances (including those received by the GP for the administration of the drug or appliance) are for a supply that is separate from the VAT-exempt medical consultation, diagnosis and prescription. The VAT liability of the payments received by GPs for personally administered drugs or appliances depends upon the status of the patient. Where drugs or appliances are personally administered to a patient to whom the GP is authorised or required under NHS arrangements to provide pharmaceutical services - as in the case of Dr Beynon and Partners - payments received by GPs for the drugs or appliances, and for the administration service, are zero-rated. However, zero-rating does not apply to drugs or appliances administered to any other NHS patient or to any private patient and these payments are therefore standard rated. Pending the outcome of Customs' application, and any subsequent appeal, medical practitioners may continue to treat the personally administered drugs and appliances as an integral part of their VAT exempt supplies of medical services. Customs does not require doctors to make any adjustment to the VAT treatment of past or present supplies of drugs as a result of the Court of Appeal judgment. Any GP may, of course, choose to apply the Court's judgment and to make a claim to Customs for the VAT incurred on personally administered drugs or appliances. Any claim must be made in the usual form, and must be fully supported by evidence - including the relevant NHS statements of payment and allowances. Customs will also require details, on a period-by-period basis, of the total number of patients on a dispensing doctor's practice register, and the number of those patients to whom the doctor is authorised or required to provide pharmaceutical services. For each VAT period, Customs also requires details of the total number of personal administrations of drugs or appliances, and how many of these administrations were made to patients to whom the doctor is required or authorised to dispense drugs. Any input tax claimed must be offset by output tax, which must be declared on drugs and appliances administered under private (non-NHS) arrangements, and all NHS payments or allowances received for the supply and administration of drugs to patients for whom the GP is not authorised, or required, to provide pharmaceutical services. Any claims are subject to the normal capping and unjust enrichment rules. If Customs is successful in any appeal against this decision, a repayment of any sums recovered is required, with interest if appropriate. European business law European contract law: Commission adopts Action Plan In February, the European Commission adopted an Action Plan on contract law in Europe. EU laws such as the Sale of Consumer Goods Directive or the Package Travel Directive already harmonise specific aspects of member states' contract laws. The Action Plan is an attempt by the Commission to make this interaction between EU and national laws more coherent and overcome problems for the smooth functioning of the internal market. Measures being proposed include support for voluntary initiatives to develop standard Europe-wide contract terms, the improvement of existing and future EU law on contracts, and a research initiative to develop common contract law rules 'based on the best solutions found in the member states' laws'. The Commission will consider the desirability and feasibility of creating an optional body of EU contract law that contractual parties could use to facilitate cross-border trade. Business, consumer groups, member states and other stakeholders now have until 16 May 2003 to comment on the Action Plan. For further information see the European Contract Law website: europa.eu.int/comm/consumers/policy/developments/contract_law/com_2003_68_en.pdf. CTM and enlargement In 2004 the first of 13 candidate states to join the bigger EU will become members. What happens about the 'Community Trademark' which is a mark which covers the whole EU? The geographic scope of all registered CTMs which were filed before the accession date will be extended to include the new member states from the date of entry onwards. This extended coverage is automatic: it is not necessary to notify or apply to the EU Office for Harmonisation in the Internal Market. For more information visit www.marken-recht.de or www.mmr.de or e-mail j.heilbock@wessing.com. Cigarette advertising banned From 14 February, the Tobacco Advertising and Promotion Act 2002 came into effect. Although advertisements for rolling papers, filters and some point of sale advertising are not covered by the ban, the act prohibits the advertising and promotion of tobacco products. It covers tobacco retailer ads aimed at the public too, but business to business ads are allowed. Before the ban on tobacco advertising, strict rules applied to advertisements and promotions for tobacco products. All advertisements for tobacco were pre-approved by the CAP copy advice team before publication. Self-regulatory rules and procedures for advertising not banned by the act are under review and will be published at www.cap.org.uk in due course. Information about the Tobacco Advertising and Promotion Act from the Department of Health Tobacco Policy Unit is at www.doh.gov.uk/tobacco.