Financial reporting standards (FRS 102) are the bedrock of transparency and consistency in the world of accounting. The Standards set out the amount and quality of information that must be provided by companies.
A copy of the Standards can be found here: www.cfainstitute.org
And here
FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (frc.org.uk)
The standards typically provide guidelines and rules that ensure companies report their financial performance accurately and in a standardised manner.
One critical aspect of financial reporting is the assessment of potential dilapidations liability that can be used to properly demonstrate a company’s true financial position.
But what does this mean for you, as a business owner?
Dilapidations liability assessments, often related to leased properties, represent potential costs a company may incur at the end of a lease when returning a property to its original condition.
Under accounting standards such as International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP), companies are required to estimate and account for these future expenses as a liability on their balance sheet. This means that you must show a cost liability for your potential dilapidations when your lease comes to an end.
You can read about dilapidations, and the potential implications here.
A copy of the Dilapidations Protocol can be found here: https://www.justice.gov.uk/courts/procedure-rules/civil/protocol/pre-action-protocol-for-claims-for-damages-in-relation-to-the-physical-state-of-commercial-property-at-termination-of-a-tenancy-the-dilapidations-protocol
What is the Process for Assessing Potential Dilapidations Liability?
The process of assessing the potential dilapidations liability is multifaceted and often complex. We would strongly recommend that you instruct an RICS Chartered Surveyor to help you.
The process involves evaluating the condition of leased properties, understanding lease terms, and estimating the costs to restore the property to its original state. Complexities arise when properties have been altered, are subject to a Schedule of Condition or there are ambiguities in the lease documents.
Companies must perform these assessments in line with financial reporting standards, ensuring compliance with accounting principles. This is where your Accountant and Surveyor should work together to ensure that the standardised principles are met.
Financial Reporting Standards & Liability Assessments
The connection between financial reporting standards and dilapidations liability assessments lies in the need for consistency, accuracy, and most of all, transparency. Proper assessment and accounting for dilapidations liability align with the principles of matching expenses with revenue and providing a true and fair view of a company’s genuine financial position.
Your Dilapidations liability will include for the reinstatement, repair and decoration of a leased premises and the associated costs thereof, included for fees.
In conclusion, financial reporting standards and dilapidations liability assessments are interlinked components of sound financial reporting.
Sticking to these standards not only ensures full compliance with relevant accounting principles, but also enables businesses to provide key stakeholders with a comprehensive and trustworthy representation of their true financial standing, subsequently fostering trust and confidence in financial reporting.
Speak to one of our experts today to see how we can work with you to ensure compliance.
