26


business focus


Chartered accountants Haines Watts presents a series of articles based on its blogs. It offers analysis, reviews and comments and welcomes your feedback at www.hwca.com/opinion


of the month


What’s good about the new accounting standard? writes Adrian Williams, partner at Haines Watts


The subject of accounting standards may not be of much interest in the busy lives of many people – but it’s important to be aware of forthcoming changes, as they may have significant implications to your business.


UK accounting standards have been moving closer to those of our international neighbours for some years but from 2015 there will be a mighty leap.


Existing UK standards are being replaced and, for most businesses, this is by a new standard called FRS102. The impact on accounts and tax is significant – both positive and negative – and with some good opportunities on transition.


One area that is affected greatly relates to the measurement of certain assets and liabilities; the new standard is generally moving towards the recognition of those balances at fair value, as compared to historic cost under the old rules.


For example, in respect of property, plant and equipment, a business can continue to carry the value of those assets at depreciated cost as before, or at valuation. That was the case under the old rules too but, previously, many didn’t view the ‘revaluation model’ to be a practical option. This was because, potentially, it forced a business to incur significant costs on professional valuations every few years.


Country Hotel insured for


less than half its value A recent survey found that 80% of businesses are underinsured


Underinsurance could expose you to a major shortfall should you ever need to make a claim making it significantly harder for your business to bounce back successfully after a major loss.


Martyn Barrett, director at expert valuation company Barrett Corp & Harrington (BCH) said: “Under insurance may not bother some property owners and landlords in the short term, as being underinsured obviously means that they pay lower premiums, and everyone likes to save themselves money. However, when a major problem does arise, the impact of an insurer applying what is known as ‘average’ to the claim will generally make them reconsider that view. To put that in its simplest terms, if the full reinstatement or rebuild cost of a building is £2 million, yet the insured value is £1m, the insurers will be quite within their rights to impose a ‘proportionate


www.businessmag.co.uk


settlement’ on any claim. This means that as the property was underinsured by 50%, a valid claim for £200,000 worth of insured damage would only lead to an insurance pay out of £100,000, leaving the property owner substantially out of pocket by £100,000.”


£5m shortfall


A prestigious country hotel, had previously been valued at a £5.1m rebuild cost. So the client thought that if the hotel was impacted by an unfortunate event and totally destroyed, it would cost just over £5m to completely reinstate it.


However, using our valuation service with experts from BCH it was quickly realised that the figure £5.1m was 50% less than its true reinstatement value which was found to be £10.4m. This meant that in the event of a total loss the maximum payable would have been £5.1m. If reinstated to its original state the client would have


The opportunity with FRS102 comes on transition, in that a company is permitted to have a revaluation and to adopt this as the ‘deemed cost’, as a one-off exercise.


So, let’s assume that my balance sheet isn’t looking particularly healthy, with negligible net assets. The business owns a property, bought 20 years ago, which it has slowly been depreciating. It currently shows on the balance sheet at that depreciated historic cost.


However, suppose that the property’s current value is


significantly higher. Under FRS102 I can go into the new regime with the property showing at that higher amount, without taking on the burden of regular revaluation costs. This would therefore have a significant positive impact and transform my balance sheet.


So, as you can see, change isn’t always bad. Talk to us to ensure you know your options.


For further details on financial matters visit the website.


Details: www.hwca.com


to invest the further £5.3m, leaving a huge shortfall.


Barrett said: “When dealing with a listed building of this quality, it is essential to take into account the full cost of replicating all of the important architectural features. This building has a high-degree embellishment and had recently been sympathetically refurbished to a high standard. Our reinstatement cost assessment also took due account of the stone exterior, which amongst other factors contributed to our assessment value of £10.4m.”


Expert advice


BCH has created a list of the 10 key indicators which might indicate that your building is underinsured:


• The current insurance value is based on a mortgage valuation


• The property is listed and/or in a conservation area


• The building is made from stone or unusual local materials


• There are extensive outbuildings which may not have been included


• It was constructed before 1920 • Recent extensions/alterations/


THE BUSINESS MAGAZINE – THAMES VALLEY – OCTOBER 2015


refurbishments which had not previously been accounted for


• The insurance value has been based on a percentage of the market value


• The building has never had a proper valuation


• The construction methods aren’t standard eg renewable energy elements


• It is situated in an unusual location.


If any of the following applies to your property, you may wish to seek expert advice from one of our trusted advisers at Jelf.


Details: Dominic Preist 0118-9839800 dominic.preist@@jelfgroup.com


Jelf Insurance Brokers is authorised and regulated by the financial conduct authority (FCA) not all products and services are regulated by the FCA. JIB172.09.15. Source: Building Cost Information Service


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56  |  Page 57  |  Page 58  |  Page 59  |  Page 60  |  Page 61  |  Page 62  |  Page 63  |  Page 64