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Just a bit of fun....

Should you find yourself at a 'loose end' over the Bank Holiday weekend — you might be sheltering from the rain at a seaside resort or sitting in a motorway traffic jam — Taxation is here to help. Instead of shouting at your children or the car in front, calmly reflect on your copious tax knowledge.

Taxation has five copies of the Collins Dictionary of Statistics to give away to the readers who can suggest the most interesting statistics connected with tax. Your answer (one statistic per reader please) must be true and verifiable and points will be added for the more unusual and obscure statistics.

The Editor's decision will be final.

The closing date for entries is 30 September 2004.

FRS5

The Institute of Chartered Accountants of Scotland has published an update on Financial Reporting Standard 5. Application Note G to the standard has been causing some concern as to whether accountancy practices and other professional firms might face one-off additional tax liabilities as a result of having to include partners' time in work in progress and value all their work in progress at selling price. The Institute has provided the following guidance.

'Work in progress: Paragraph 13 of the standard states that it (and therefore its application notes) does not apply where there is a more specific standard dealing with the subject. Therefore, for the recognition and valuation of work in progress, Statement of Standard Accounting Practice 9 should be followed, with work in progress, other than long-term work in progress, valued at the lower of cost and net realisable value. The key issue is: when, based on the new rules in application note G, should revenue be recognised?

'Revenue: Paragraph G4 of the application note states that a seller recognises revenue when, and to the extent that, it obtains the right to consideration in exchange for its performance. Paragraph G6 clarifies that the right to consideration may occur when some, but not all, of the contractual obligations have been fulfilled. Revenue should be measured at the fair value of the right to consideration.

'In each engagement, the question needs to be asked: at what stage does the entity obtain a right to consideration for the work done? It is likely that different types of service may give rise to different patterns as to when the right to consideration arises, and the terms of the service provided to clients (as set out in the engagement letter) will need to be checked carefully. For example, in an audit engagement, unless the engagement letter establishes otherwise, it may be the case that a right to receive some or all of the audit fee would not arise until the engagement had been completed and an audit report issued; whereas, in a consulting assignment with discrete stages, a right to consideration might arise at each stage. Clearly for each type of client service engagement, there is a need to:

'When a right to consideration is established, the amount due would be recognised as revenue and in debtors, with the corresponding costs removed from work in progress.

'Many professional service firms request interim payments from clients as work progresses. This does not necessarily imply that a right to consideration has been obtained, and amounts received in advance of obtaining that right would need to be shown within creditors as payments received in advance.

'For professional partnerships, the issue of whether partners' time should be included in work in progress was addressed in the statement of recommended practice on limited liability partnerships. This required that cost included the cost of employee and partner time and relevant overheads, but not the partners' profit share. This principle would be persuasive in relation to work in progress in other partnerships. However, where revenue is recognised, the partners' profit element would be included in that revenue.'

(www.icas.org.uk)

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