ICAEW and ICAS publish updated guidance on realised and distributable profits under the Companies Act 2006

  • ICAEW (Institute of Chartered Accountants in England and Wales) (lt green) Image
  • ICAS (Institute of Chartered Accountants of Scotland) (lt green) Image

10 Apr, 2017

The Institute of Chartered Accountants in England and Wales (ICAEW) and the Institute of Chartered Accountants of Scotland (ICAS) have jointly issued updated guidance, in the form of TECH 02/17BL, to assist companies in determining whether profits made are realised and can be paid out as dividends.

The guidance replaces TECH 02/10 Guidance on the determination of realised profits and losses in the context of distributions under the Companies Act 2006 (link to ICAEW website) which required significant updating following changes to International Financial Reporting Standards (IFRSs) and UK Accounting Standards (notably the introduction of Financial Reporting Standard (FRS) 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland) and to provide additional guidance on a number of areas that have arisen in practice.  

Substantive changes have been made to the guidance on accounting for intragroup off-market loans, the guidance on retirement benefit schemes and clarity has been provided on the application to long-term insurance businesses as a result of Solvency II.  Other changes are in the nature of updating references to the revised standards, removing obsolete material that had become outdated in TECH 02/10 and providing further clarity in certain areas. 

Investors are demanding greater disclosure around distributable reserves.  Whilst not proposing changes to disclosure, the guidance will assist companies to meet investor expectations in this respect.  It will also help to avoid the potentially serious consequences for companies and their directors of making an unlawful distribution. 

The guidance, published following a period of consultation, is equally applicable to companies applying both IFRSs and UK GAAP. 

The updated guidance is available on the ICAEW website here.  Our related Need to know publication is available here.

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