Section 8: Statutory Accounting
CONTENTS
8.1
8.2
8.3
8.4
8.5
8.6
8.7
Accounting Policies ................................................................................................... 4
A
Introduction ...................................................................................................... 4
B
Applicable UK Accounting Standards and The Law Society ........................... 4
C
UK GAAP - Generally Accepted Accounting Practice in the UK ..................... 5
D
Income ............................................................................................................. 5
E
Expenditure ..................................................................................................... 5
The Law Society / Section 47 .................................................................................... 7
A
Introduction ...................................................................................................... 7
B
Purpose ........................................................................................................... 7
C
Annual Accounts .............................................................................................. 7
D
Council Responsibilities ................................................................................... 7
E
Section 47 ........................................................................................................ 8
Law Society Services Ltd (LSSL) .............................................................................. 9
A
Introduction ...................................................................................................... 9
B
Purpose ........................................................................................................... 9
C
Annual Accounts .............................................................................................. 9
D
Directors’ Responsibilities ............................................................................... 9
Law Society Property Services Ltd (LSPSL) ......................................................... 11
A
Introduction .................................................................................................... 11
B
Purpose ......................................................................................................... 11
C
Annual Accounts ............................................................................................ 11
D
Directors’ Responsibilities ............................................................................. 11
Compensation Fund ................................................................................................. 12
A
Background ................................................................................................... 12
B
Governance ................................................................................................... 12
C
Operations ..................................................................................................... 13
Statutory Trust Accounts ........................................................................................ 14
A
Background ................................................................................................... 14
B
Governance ................................................................................................... 14
C
Operations ..................................................................................................... 14
Bursary Fund ............................................................................................................ 15
A
Introduction .................................................................................................... 15
B
Purpose ......................................................................................................... 15
Financial Policies & Procedures
August 2004 (Rev 1)
Section 8 – Page 1
C
8.8
8.9
8.10
8.11
8.12
8.13
8.14
8.15
8.16
8.17
Annual Accounts ............................................................................................ 15
Bursary Pool ............................................................................................................. 16
A
Introduction .................................................................................................... 16
B
Purpose ......................................................................................................... 16
C
Annual Accounts ............................................................................................ 16
Trust Prize Fund ....................................................................................................... 17
A
Introduction .................................................................................................... 17
B
Purpose ......................................................................................................... 17
C
Annual Accounts ............................................................................................ 17
Trust Prize Fund Investment Pool ......................................................................... 18
A
Introduction .................................................................................................... 18
B
Purpose ......................................................................................................... 18
C
Annual Accounts ............................................................................................ 18
Stannard Bequest Fund (SBF) ............................................................................... 19
A
Introduction .................................................................................................... 19
B
Purpose ......................................................................................................... 19
C
Annual Accounts ............................................................................................ 19
D
Trustee’s Responsibilities .............................................................................. 19
The Stannard Trustee Trust ................................................................................... 20
A
Introduction .................................................................................................... 20
B
Purpose ......................................................................................................... 20
C
Annual Accounts ............................................................................................ 20
D
Trustee’s Responsibilities .............................................................................. 20
The Law Society Charity......................................................................................... 21
A
Introduction .................................................................................................... 21
B
Purpose ......................................................................................................... 21
C
Annual Accounts ............................................................................................ 21
D
Trustee’s Responsibilities .............................................................................. 21
The Law Society Trustees Ltd ............................................................................... 22
A
Introduction .................................................................................................... 22
B
Purpose ......................................................................................................... 22
C
Annual Accounts ............................................................................................ 22
D
Director’s Responsibilities ............................................................................. 22
Law Society (Software Licensing Services) Limited ........................................... 23
A
Introduction .................................................................................................... 23
B
Purpose ......................................................................................................... 23
C
Annual Accounts ............................................................................................ 23
D
Directors’ Responsibilities ............................................................................. 23
Law Society (Hardware Rental Services) Limited ................................................ 24
A
Introduction .................................................................................................... 24
B
Purpose ......................................................................................................... 24
C
Annual Accounts ............................................................................................ 24
D
Directors’ Responsibilities ............................................................................. 24
Brussels Office ........................................................................................................ 25
A
Introduction .................................................................................................... 25
Financial Policies & Procedures
August 2004 (Rev 1)
Section 8 – Page 2
B
8.18
Pension Scheme ..................................................................................................... 26
A
8.19
Banking / Accounts ........................................................................................ 25
Introduction .................................................................................................... 26
Retirement Benefit Scheme ................................................................................... 28
A
Introduction .................................................................................................... 28
Appendix 1: Accounting Standards ......................................................................................... 29
Appendix 2: Accounting for Leases ......................................................................................... 32
Appendix 3: Adoption of International Accounting Standards ................................................. 35
Financial Policies & Procedures
August 2004 (Rev 1)
Section 8 – Page 3
Section 8: Statutory Accounting
8.1
Accounting Policies
A
Introduction
A.1
The financial statements of The Law Society (TLS), its subsidiaries and
associated entities are prepared in accordance with applicable United
Kingdom accounting standards.
A.2
The financial statements are prepared under the historical cost convention.
A.3
The consolidated financial statements include the financial statements of The
Law Society, The Law Society Services, The Law Society Property Services
Limited, The Law Society Pension Scheme Limited, Law Society (Hardware
Rental Services) Limited and Law Society (Software Licensing) Services
Limited.
B
Applicable UK Accounting Standards and The Law Society
B.1
Financial reporting standards (FRSs) known as accounting standards are
issued by the accounting standards board (ASB) which lay down the
accounting treatment to be used in accounts that are intended to show a ‘true
and fair’ view. The ASB adopted the standards issued by its predecessor the
Accounting Standards Council - statements of standard accounting practice
(SSAPs). Some of the SSAPs have been superseded by FRSs, some remain
in force.
B.2
Accounting standards are principle based as opposed to rules (detailed
prescription) based, therefore each organisation must interpret and apply the
standards to ensure the results show a true and fair view.
B.3
These standards are currently being re-written to converge with International
accounting standards and revised standards will be issued as International
Financial reporting standards (IFRSs) which all UK Listed companies must
adopt by 2005. See Appendix 1 for current accounting standards and
Appendix 3 for the adoption of international accounting standards.
B.4
Accounting Standards are published to:

state what the correct accounting treatment of an item should be;

ensure that accounts are produced within the same restrictions thus
allowing valid comparisons between accounts of different organisations
to be made.
B.5
The Law Society’s financial accounts should comply with the relevant
standards as the accounts are intended to show a true and fair view and that
is the basis on which they are audited. The only exception would be if
compliance with a standard would result in the accounts not showing a true
and fair view. In that rare instance it would be wrong to comply with the
standard as it is over-ridden by the need to show true and fair view.
B.6
The standards are not binding on the Society’s management accounts which
are prepared for internal use only and not made public. However, the
management accounts are integrated with the financial accounts and use the
same data and accounting treatments as the financial accounts. Therefore,
the standards are applied to the management accounts where relevant.
Financial Policies & Procedures
August 2004 (Rev 1)
Section 8 – Page 4
Section 8: Statutory Accounting
8.1
Accounting Policies (cont)
B.7
Since the financial and management accounts are the aggregate of the
financial transactions generated throughout the Society, it is important that
everyone takes care to code orders/invoices correctly.
C
UK GAAP - Generally Accepted Accounting Practice in the UK
C.1
Generally accepted does not mean generally adopted or used but refers to
accounting practices which are generally permissible by the accounting
profession as a whole. Any accounting practice which is legitimate in the
circumstances under which it has been applied should be regarded as GAAP.
D
Income
D.1
Practising certificates: fees are apportioned on a time basis.
D.2
Examination fees: accounted for in the year in which the examination is held.
D.3
Legal Practice Course fees and student enrolment fees: accounted for over
the period of the course to which they relate.
D.4
Admission, annual enrolment, registration and transfer of articles: accounted
for on a cash received basis.
D.5
All other income: accounted for according to the relevant accounting standard
or principle.
E
Expenditure
E.1
Tangible fixed assets (incl. freehold property) - these are stated at cost less
depreciation.
E.2
Depreciation is provided on a straight line basis – in respect of freehold
buildings, over the useful economic life of the various components; in respect
of leasehold property, over the period to the next open market rent review; in
respect of improvements, over 10 years or the period of the lease if shorter; in
respect of main frame, mini computers, servers and operating software, over
5 years; in respect of software associated with CRM and web systems, over 5
years from the point at which the relevant software was first used; in respect
of all other computing equipment, over 3 years; in respect of equipment and
furniture, over 10 years.
E.3
Investments: fixed asset investments are shown at cost less provision for
impairment. Current assets investments are stated at lower of cost and net
realisable value.
E.4
Stocks: are valued at lower of cost and net realisable value.
E.5
Leases: rental charges on operating leases are charged to the income and
expenditure accounts in equal amounts over the lease term. The value of
operating leases expiring between two and five years are disclosed in the
accounts. See Appendix 2.
Financial Policies & Procedures
August 2004 (Rev 1)
Section 8 – Page 5
Section 8: Statutory Accounting
8.1
Accounting Policies (cont)
E.6
Pension costs: the expected costs are charged to the income and expenditure
account so as to spread the cost of pensions over the service lives of the
employees.
E.7
Taxation: a full provision is made in the accounts for taxation payable on
activities during the year.
E.8
All other expenditure: accounted for according to the relevant accounting
standard or principle.
Financial Policies & Procedures
August 2004 (Rev 1)
Section 8 – Page 6
Section 8: Statutory Accounting
8.2
The Law Society / Section 47
A
Introduction
A.1
The Law Society is a body incorporated by Royal Charter. It is not a
company registered under Companies Acts and its constitution differs from
those of registered companies.
A.2
It does not have shareholders. Its membership comprises mostly of members
of the solicitors’ profession in England and Wales. It is governed by Council
Members.
A.3
The Law Society has a number of wholly owned subsidiaries (registered
limited companies) whose constitution is defined within Companies Acts.
B
Purpose
B.1
The Law Society was granted its Royal Charter in 1845 to regulate and
represent members of the solicitors profession (and foreign lawyers who are
registered with it).
B.2
It carries out regulatory functions under statutory powers. It also acts as the
representational body for the solicitors’ profession.
C
Annual Accounts
C.1
The accounting year end is 31 December. The accounts are prepared under
the accounting principles stated in 8.1 above and are approved by Council
and signed by the President and Treasurer.
C.2
The annual financial statements are prepared by The Law Society and
audited annually by Deloitte & Touche LLP. The scope of the audit (detailed
in the engagement letter) is formally approved by the Audit Committee and
then agreed by the Finance & Resource Board.
C.3
Individual accounts are produced for The Law Society and consolidated
accounts are also produced. The consolidated accounts incorporate the
results of the Law Society subsidiaries (Property company, Services company
etc) on a line by line basis.
C.4
Cost centres included within The Law Society Services are: All remaining cost
centres not included within Services Company and The Property Company
(8.3 and 8.4 below respectively).
D
Council Responsibilities
D.1
To approve the accounts of the organisation.
D.2
To ensure proper accounting records are kept and that the accounts for each
financial year show a true and fair view of the state of affairs of the Society.
D.3
To ensure suitable accounting records are kept and applied consistently.
D.4
The council has voluntarily decided to comply with corporate governance
codes on internal control.
Financial Policies & Procedures
August 2004 (Rev 1)
Section 8 – Page 7
Section 8: Statutory Accounting
8.2
The Law Society (cont)
D.5
The Office holders (President, Vice President, Deputy Vice President,
Treasurer and Chief Executive) are included within the Law Society’s office
holders, directors and officers liability insurance policy.
E
Section 47
E.1
The Law Society has a right to levy a practising certificate fee under the
Solicitors Act 1974. Under the original provisions of the act, the practising
certificate fee could be used “for the purposes of the Society”. However, this
was amended by section 47 of the Access to Justice Act 1999. Under this
amendment, the use of the practising certificate fee was restricted to
regulatory activities and activities in the public interest. Representation
Activities which were “trade union” in nature, were not to be funded out of the
fee.
E.2
The statutory instrument that implemented this section was approved in 2002.
The application of the change in rules has been agreed between the Law Society and
the Department for Constitutional Affairs (DCA).
.
Financial Policies & Procedures
August 2004 (Rev 1)
Section 8 – Page 8
Section 8: Statutory Accounting
8.3
Law Society Services Ltd (LSSL)
A
Introduction
A.1
The Law Society Services Limited is a registered limited liability company. It is
a wholly owned subsidiary of The Law Society (TLS) and is regarded by the
directors as the ultimate parent undertaking. The President and Treasurer
and Chief Executive are Directors of the company and the Director of Finance
and Resources is the company secretary.
A.2
The company has an authorised share capital of £100, made up of 100 £1
ordinary shares. All of these shares are owned and held by TLS.
B
Purpose
B.1
The company was incorporated on 11 June 1963 to provide services for the
benefit of The Law Society and its members. The company is principally
engaged in providing services and carrying on activities for the Law Society
and its members. The main services provided are publication of the Gazette
and other publications, career recruitment and information services, catering,
conferences, financial and promotional services for solicitors and a
representational role for TLS within the European Community through an
office in Brussels.
B.2
The company elected some years ago to dispense with the requirement to
hold annual general meetings and board meetings, therefore none are held.
B.3
Membership of the company is limited to the Law Society or to members of
the Council of TLS or any other person approved by the Council.
C
Annual Accounts
C.1
The accounting year end is 31 December. The accounts are prepared under
the accounting principles stated in 8.1 above and are approved by Council
and signed by the Treasurer. The annual accounts are also approved (signed
resolution) by the board of the services company each year.
C.2
The annual accounts are prepared by The Law Society and audited annually
by Deloitte & Touche LLP. The scope of the audit (detailed in the
engagement letter) is formally approved by the Audit Committee and then
agreed by the Finance & Resource Board.
C.3
Individual accounts are produced for LSSL, and these results are also
incorporated within the consolidated accounts of TLS - on a line by line basis.
C.4
Cost centres included within the Services company: All GP cost centres, All
MS cost centres (excl MS28, MS10, MS34), MK cost centres, PD20, 26, 27,
28, ID05, OH05, OH20, GR11, BS11 and parts of library, regional offices and
private client.
D
Directors’ Responsibilities
D.1
To approve the accounts of the company.
Financial Policies & Procedures
August 2004 (Rev 1)
Section 8 – Page 9
Section 8: Statutory Accounting
8.3
Law Society Services Ltd (LSSL) (cont)
D.2
To approve resolutions pertaining to directors’ appointment, directors’
resignations, share transfer and audit appointment.
D.3
The Directors are not reimbursed for their services.
D.4
Directors are included within the Law Society’s liability insurance policy.
Financial Policies & Procedures
August 2004 (Rev 1)
Section 8 – Page 10
Section 8: Statutory Accounting
8.4
Law Society Property Services Ltd (LSPSL)
A
Introduction
A.1
The Law Society Property Services Limited is a registered limited liability
company. It is a wholly owned subsidiary of The Law Society (TLS) and is
regarded by the directors as the ultimate parent undertaking. The President
and Treasurer are Directors of the company and the Director of Finance and
Resources is the company secretary.
A.2
The company has an authorised share capital of £100, made up of 100 £1
ordinary shares. 98 of these shares are owned and held by TLS and the
remaining 2 shares are held by the Directors as nominee shareholders.
B
Purpose
B.1
The company was incorporated on 10 September 1992 and owns the Victoria
Court freehold property. The company is principally engaged in the letting of
Victoria Court to TLS.
B.2
The company elected some years ago to dispense with the requirement to
hold annual general meetings and board meetings, therefore none are held.
C
Annual Accounts
C.1
The accounting year end is 31 December. The accounts are prepared under
the accounting principles stated in 8.1 above and are approved by Council
and signed by the Treasurer and the President. The annual accounts are
also approved (signed resolution) by the board of the property company each
year.
C.2
The annual accounts are prepared by The Law Society and audited annually
by Deloitte & Touche LLP. The scope of the audit (detailed in the
engagement letter) is formally approved by the Audit Committee and then
agreed by the Finance & Resource Board.
C.3
Individual accounts are produced for LSPS, and these results are also
incorporated within the consolidated accounts of TLS - on a line by line basis.
C.4
Most of the transactions of the company are in respect of dealings with TLS,
the parent undertaking.
C.5
Cost centres included within LSPS: PL12 and BS12.
D
Directors’ Responsibilities
D.1
To approve the accounts of the company.
D.2
To approve resolutions pertaining to directors’ appointment, directors’
resignations, share transfer and audit appointment.
D.3
Directors are not reimbursed for their services.
D.4
Directors are included within the Law Society’s liability insurance policy.
Financial Policies & Procedures
August 2004 (Rev 1)
Section 8 – Page 11
Section 8: Statutory Accounting
8.5
Compensation Fund
A
Background
A.1
The Compensation Fund is maintained and administered pursuant to section
36 of the Solicitors Act 1974 and Schedule 2 of the Act as amended by the
Courts and Legal Services Act 1990 and under the provisions of the
Administration of Justice Act 1980.
A.2
The administration of the Compensation Fund is governed by the Solicitors’
Compensation Fund Rules 1995 made under section 36(8) of the Solicitors
Act 1974 and section 9 of the Administration of Justice Act 1985.
A.3
The financial statements are prepared in accordance with applicable United
Kingdom accounting standards and under the historical cost convention.
A.4
The object of the Fund is to enable the Law Society to make discretionary
grants to those persons who have suffered loss by reason of the dishonesty
of a solicitor, or his or her employee, or to an applicant who has suffered
hardship as a consequence of a failure by a solicitor to account for money.
B
Governance
B.1
The Law Society of England and Wales (the “Law Society”) acts as the
Trustee of the Fund.
B.2
The Council of the Law Society is required under the bye-laws of that Society
to cause proper accounts to be kept. In the exercise of this responsibility the
Council has, as permitted by the Society’s General Regulations, delegated
this duty to the Main Board and the Finance & Resources Board which are
thereby responsible for the preparation of the financial statements of the
Fund, to which the Law Society is Trustee, for each financial year which give
a true and fair view of the state of affairs of the Fund as at the end of the
financial year and of the surplus or deficit of the Fund for that period. In
preparing those financial statements, the Main Board and the Finance &
Resources Board:
B.3

have selected suitable accounting policies and then applied them
consistently;

made judgements and estimates that are reasonable and prudent;

stated whether applicable accounting standards have been followed;

caused the preparation of the financial statements on the going concern
basis.
The Main Board and the Finance & Resources Board are responsible for
ensuring proper accounting records are kept which disclose with reasonable
accuracy at any time the financial position of the Fund. They are also
responsible for safeguarding the assets of the Fund and hence for taking
reasonable steps for the prevention and detection of fraud and other
irregularities.
Financial Policies & Procedures
August 2004 (Rev 1)
Section 8 – Page 12
Section 8: Statutory Accounting
8.5
Compensation Fund (cont)
C
Operations
C.1
The Regulation Finance Team in close co-operation with Central Finance and
the Compensation Fund Administration conducts day to day financial
management of the Fund.
C.2
Accounting for the Compensation Fund is based on the Receipts and
Payments principles adjusted at the year-end for material accruals in order to
produce a Statement of Assets and Liabilities (Balance Sheet substitute).
C.3
The Compensation Fund publishes a separate statement of account that is
audited by the Society’s auditors and presented to Council.
Financial Policies & Procedures
August 2004 (Rev 1)
Section 8 – Page 13
Section 8: Statutory Accounting
8.6
Statutory Trust Accounts
A
Background
A.1
The finance function is responsible for ensuring that the accounts of the funds
seized during an intervention into a firm of solicitors are reconciled, and the
money protected, properly accounted for and distributed appropriately. These
cash balance accounts are referred to as the Statutory Trust Accounts
(‘STAs’).
A.2
In order to safeguard client’s monies the Society takes on the role of Trustee
of any seized funds or assets, whether they belong to a solicitor’s client or are
office monies. Where the beneficiaries cannot be located quickly by the
intervention team the funds are paid over to the Society who set up individual
trust accounts, the STAs.
B
Governance
B.1
The Trusteeship is held by the Law Society Council and delegated to the
Finance and Resources Board.
B.2
To avoid potential conflict of interests the Law Society has taken the
precaution of appointing separate advisors for the STAs and the
Compensation Fund.
C
Operations
C.1
The Post Intervention team is responsible for discharging the Society’s
trustee responsibilities and is responsible for continuing to service those
accounts ensuring proper returns on the investments and continued efforts to
locate the owners or beneficiaries. The PIU team is supported by the
Regulation Finance team.
C.2
An annual statement of assets held in trust as STAs is incorporated within the
Law Society’s annual accounts as a note to the account.
Financial Policies & Procedures
August 2004 (Rev 1)
Section 8 – Page 14
Section 8: Statutory Accounting
8.7
Bursary Fund
A
Introduction
A.1
The Bursary Funds (BF) are part of a scheme set up under a Scheme
established by the then Secretary of State for Education and Science on 22
January 1970 in accordance with sections 18 and 22 of the Charities Act
1960.
A.2
The Law Society (TLS) is trustee of the BF.
B
Purpose
B.1
Each bursary fund was created for a particular purpose, but generally, the
funds are to provide assistance in the form of bursaries to those studying for
the CPE or on the LPC and wishing to become a solicitor. Each bursary fund
holds a number of shares in the Bursary Pool, a common investment pool for
the BF. The assets of the pool are invested with advice from HSBC, the
investment managers.
B.2
The income of the pool is then paid in half-yearly dividends to the participating
bursary funds in accordance to their shareholdings.
B.3
The award of bursaries is decided by the Bursary Sub-committee of the
Training Committee. The Sub-Committee normally meets once a year in the
summer to approve bursaries for the coming academic year. Awards are
made based on the applicant’s circumstances and funds available.
C
Annual Accounts
C.1
The accounting year end is 30 November. The accounts are prepared under
the accounting principles stated in 8.1 above and are approved by the Society
as trustee.
C.2
These accounts are not incorporated within the consolidated accounts of TLS.
Financial Policies & Procedures
August 2004 (Rev 1)
Section 8 – Page 15
Section 8: Statutory Accounting
8.8
Bursary Pool
A
Introduction
A.1
The Bursary Pool (BP) is an investment pool set up under a Scheme
established by the then Secretary of State for Education and Science on 22
January 1970 in accordance with sections 18 and 22 of the Charities Act
1960.
A.2
The Law Society (TLS) is trustee of the BP.
B
Purpose
B.1
The purpose of the BP is to provide a common investment pool for the
various bursary funds for which the Society is trustee. Each bursary fund
holds a number of shares in the BP. The assets of the pool are invested with
advice from HSBC, the investment managers.
B.2
The income of the pool is then paid in half-yearly dividends to the participating
bursary funds in accordance to their shareholdings. This dividend income is
then used to award bursaries to those training to be a solicitor.
C
Annual Accounts
C.1
The accounting year end is 30 November. The accounts are prepared under
the accounting principles stated in 8.1 above and are approved by the Society
as trustee.
C.2
These accounts are not incorporated within the consolidated accounts of TLS.
Financial Policies & Procedures
August 2004 (Rev 1)
Section 8 – Page 16
Section 8: Statutory Accounting
8.9
Trust Prize Funds
A
Introduction
A.1
The Trust Prize Funds (TPF) are part of a scheme set up under a Scheme
established by the then Secretary of State for Education and Science on 14
April 1965 in accordance with sections 18 and 22 of the Charities Act 1960.
A.2
The Law Society (TLS) is trustee of the TPF.
B
Purpose
B.1
Each trust prize fund was created for a particular purpose, but generally, the
funds are to provide prizes for those students who have performed best
taking the LPC. Each trust prize fund holds a number of shares in the Trust
Prize Fund Investment Pool, a common investment pool for the TPF. The
assets of the pool are invested with advice from HSBC, the investment
managers.
B.2
The income of the pool is then paid in half-yearly dividends to the participating
trust prize funds in accordance to their shareholdings.
B.3
The award of prizes is then decided by the Legal Education Business Unit
following notification of performances from the various LPC providers. The
amount of the prize will depend upon the funds available.
C
Annual Accounts
C.1
The accounting year end is 30 November. The accounts are prepared under
the accounting principles stated in 8.1 above and are approved by the Society
as trustee.
C.2
These accounts are not incorporated within the consolidated accounts of TLS.
Financial Policies & Procedures
August 2004 (Rev 1)
Section 8 – Page 17
Section 8: Statutory Accounting
8.10
Trust Prize Fund Investment Pool
A
Introduction
A.1
The Trust Prize Fund Investment Pool (TPFIP) is an investment pool set up
under a Scheme established by the then Secretary of State for Education and
Science on 14 April 1965 in accordance with sections 18 and 22 of the
Charities Act 1960.
A.2
The Law Society (TLS) is trustee of the TPFIP.
B
Purpose
B.1
The purpose of the TPFIP is to provide a common investment pool for the
various trust prize funds for which the Society is trustee. Each trust prize fund
holds a number of shares in the TPFIP. The assets of the pool are invested
with advice from HSBC, the investment managers.
B.2
The income of the pool is then paid in half-yearly dividends to the participating
bursary funds in accordance to their shareholdings. This dividend income is
then used to award prizes to the best candidates in the LPC.
C
Annual Accounts
C.1
The accounting year end is 30 November. The accounts are prepared under
the accounting principles stated in 8.1 above and are approved by the Society
as trustee.
C.2
These accounts are not incorporated within the consolidated accounts of TLS.
Financial Policies & Procedures
August 2004 (Rev 1)
Section 8 – Page 18
Section 8: Statutory Accounting
8.11
Stannard Bequest Fund (SBF)
A
Introduction
A.1
The Stannard Bequest Fund is a fund set up and controlled by the Law
Society (TLS), the trustee of the fund.
A.2
The initial funds of £100,329 were deposited within TLS bank account.
B
Purpose
B.1
The Fund was established after Mr E J Stannard (a solicitor) bequeathed
funds to TLS with the express wish that TLS would use part of the funds in
assisting law students.
B.2
The funds are invested in the equity market and all dividends and interest
generated by this investment (if applicable) are paid over to the Stannard
Trustees each year for distribution to law students.
C
Annual Accounts
C.1
The accounting year end is 31 December. The accounts are prepared under
the accounting principles stated in 8.1 above. They are approved by Council
and signed by the Treasurer and the President.
C.2
Regular trustee meetings are not held, however the accounts are formally
adopted at the Society’s AGM each July.
C.3
The annual accounts are prepared by The Law Society and audited annually
by Deloitte & Touche LLP. The scope of the audit (detailed in the
engagement letter) is formally approved by the Audit Committee and then
agreed by the Finance & Resource Board.
C.4
All transactions relating to Stannard Bequest is charged to cost centres: PL22
and BS22.
C.5
Stannard Bequest does not have a bank account (all transactions are
conducted within TLS bank account).
D
Trustee’s Responsibilities
D.1
To approve the accounts of the fund.
D.2
Trustees are not reimbursed for their services.
D.3
Trustees (i.e. office holders) are included within the Law Society’s office
holders, directors and officers liability insurance policy.
Financial Policies & Procedures
August 2004 (Rev 1)
Section 8 – Page 19
Section 8: Statutory Accounting
8.12
The Stannard Trustee Trust
A
Introduction
A.1
The Stannard Trustee Trust (STT) is a trust established by the Law Society
by trust deed. Its funds are not part of the Law Society (TLS).
A.2
The trustees of the STT are members of the Bursary Sub-committee of the
Training Committee.
B
Purpose
B.1
Mr E J Stannard, a solicitor who died in 1943, left certain funds to the Law
Society. Although the funds were given without restrictions, he expressed the
wish that part of the money be used to assist those training to become
solicitors.
B.2
In accordance with Mr Stannard’s wishes the amounts received from the
estate and residual life interests, have been by separately invested in the
Stannard Bequest Fund. The income from this fund is then donated to the
STT.
B.3
The STT will then meet to consider bursary applications from LPC and CPE
students who are in need of financial assistance. They will make awards
according to need and financial resources available.
C
Annual Accounts
C.1
The accounting year end is 5 April. The accounts are prepared under the
accounting principles stated in 8.1 above and are approved by the trustees.
C.2
These accounts are not incorporated within the consolidated accounts of TLS
D
Trustee’s Responsibilities
D.1
To act as trustee of the STT.
D.2
The trustees are not reimbursed for their services.
D.3
The trustees are included within the Law Society’s liability insurance policy.
Financial Policies & Procedures
August 2004 (Rev 1)
Section 8 – Page 20
Section 8: Statutory Accounting
8.13
The Law Society Charity
A
Introduction
A.1
The Law Society Charity (the Charity) is a registered charity established by
trust deed. Its funds are not part of the Law Society (TLS).
A.2
The trustee of the Charity is The Law Society Trustees Limited (see 8.14
below). In theory other trustees could also be appointed.
B
Purpose
B.1
The Charity was established under trust deed dated 22 November 1974
between the Law Society and The Law Society Trustees Limited. Under the
deed, the Charity can be used for any charitable purpose at the discretion of
the trustee. The trustee’s board of directors has produced guidelines which
specify the charitable purposes for which the funds of the Charity are to be
used.
B.2
The Charity receives funding from the Law Society under a deed of covenant
and also receives funding from the Society and The Law Society Services
Limited (at the Society’s discretion) under gift aid.
C
Annual Accounts
C.1
The accounting year end is 5 April. The accounts are prepared under the
accounting principles stated in 8.1 and are approved by the trustee’s board of
directors.
C.2
The annual accounts are filed with the Charity Commission and laid before
the trustee’s members at its Annual General Meeting.
C.3
These accounts are not incorporated within the consolidated accounts of TLS.
D
Trustee’s Responsibilities
D.1
To act as trustee of The Law Society Charity.
D.2
To fulfil its normal obligations as trustee of a registered charity under charity
law.
D.3
The directors of the trustee board are included within the Law Society’s
liability insurance policy.
Financial Policies & Procedures
August 2004 (Rev 1)
Section 8 – Page 21
Section 8: Statutory Accounting
8.14
The Law Society Trustees Ltd
A
Introduction
A.1
The Law Society Trustees Limited is a registered company limited by
guarantee. It is not a subsidiary of The Law Society (TLS) as it has the power
to act independently of the Society. The directors of the company are Council
members and other solicitors. The Head of Finance is the company
secretary.
A.2
The members of the company are TLS itself and the directors of the
company. The liability of the members is limited to £1. TLS is represented by
the Treasurer of TLS at general meetings.
B
Purpose
B.1
The company was incorporated on 22 November 1974 to act as the trustee of
The Law Society Charity (see 8.13).
B.2
The company is sole trustee of The Law Society Charity although in theory
other trustees could be appointed. Acting as trustee of The Law Society
Charity is the company’s sole function although in theory it may engage in
other activities.
C
Annual Accounts
C.1
The accounting year end is 5 April. The accounts are prepared under the
accounting principles stated in 8.1 and are approved by the board of
directors.
C.2
The annual accounts are filed with Companies House and laid before the
members at the Annual General Meeting.
C.3
These accounts are incorporated within the consolidated accounts of TLS.
D
Director’s Responsibilities
D.1
To make decisions as trustee of The Law Society Charity.
D.2
To appoint and, if necessary, remove members and directors of the company.
D.3
To fulfil their normal obligations as directors under company law.
D.4
The Board normally meets five times a year. Directors are not reimbursed for
their services.
D.5
Directors are included within the Law Society’s liability insurance policy.
Financial Policies & Procedures
August 2004 (Rev 1)
Section 8 – Page 22
Section 8: Statutory Accounting
8.15
Law Society (Software Licensing Services) Limited
A
Introduction
A.1
The Law Society (Software Licensing Services) Limited is a registered limited
liability company. It is a wholly owned subsidiary of The Law Society (TLS)
and is regarded by the directors as the ultimate parent undertaking. The
Chief Executive and the Director of Finance and Resources are directors of
the company and the Head of Finance is the company secretary.
A.2
The company has an authorised share capital of £100, made up of 100 £1
ordinary shares. The company has issued One share to The Law Society.
The remaining shares have not been issued.
B
Purpose
B.1
The company was incorporated on 2 May 2002 to enter into all types of
software licenses, contracts and permissions, relating to the operation of
computer hardware and all associated telecommunications and data
processing equipment, for or on behalf of The Law Society.
B.2
The company is dormant.
C
Annual Accounts
C.1
The accounting year end is 31 December. The accounts are prepared under
the accounting principles stated in 8.1 and are approved by the board of
directors.
C.2
To approve resolutions pertaining to directors’ appointment, directors’
resignations, share transfer and audit appointment.
C.3
Individual accounts are produced for the company. These results (currently
nil) are incorporated within the consolidated accounts of TLS.
D
Directors’ Responsibilities
D.1
To approve the accounts of the company.
D.2
To approve resolutions pertaining to directors’ appointment, directors’
resignations, share transfer and audit appointment.
D.3
Directors are not reimbursed for their services.
D.4
Directors are included within the Law Society’s liability insurance policy.
Financial Policies & Procedures
August 2004 (Rev 1)
Section 8 – Page 23
Section 8: Statutory Accounting
8.16
Law Society (Hardware Rental Services) Limited
A
Introduction
A.1
The Law Society (Hardware Rental Services) Limited is a registered limited
liability company. It is a wholly owned subsidiary of the Law Society (TLS)
and is regarded by the directors as the ultimate parent undertaking. The
Chief Executive and the Director of Finance & Resources are directors of the
company and the Head of Finance is the company secretary.
A.2
The company has an authorised share capital of £100, made up of 100 £1
ordinary shares. The company has issued One share to The Law Society.
The remaining shares have not been issued.
B
Purpose
B.1
The company was incorporated on 2 May 2002 to purchase, acquire, lease,
buy, sell, hold or transfer computer hardware and all associated
telecommunications and data processing equipment, for or on behalf of the
Law Society.
B.2
The company is dormant.
C
Annual Accounts
C.1
The accounting year end is 31 December. The accounts are prepared under
the accounting principles stated in 8.1 and are approved by the board of
directors.
C.2
The annual accounts are prepared by the Law Society and are excluded from
audit under s250(1)(a) of Companies Act 1985 (i.e. dormant company),
accordingly no auditors are appointed.
C.3
Individual accounts are produced for the company. These results (currently
nil) are incorporated within the consolidated accounts of TLS.
D
Directors’ Responsibilities
D.1
To approve the accounts of the company.
D.2
To approve resolutions pertaining to directors’ appointment, directors’
resignations, share transfer and audit appointment.
D.3
Directors are not reimbursed for their services.
D.4
Directors are included within the Law Society’s liability insurance policy.
Financial Policies & Procedures
August 2004 (Rev 1)
Section 8 – Page 24
Section 8: Statutory Accounting
8.17
Brussels Office
A
Introduction
A.1
The Law Society’s Office in Brussels (LSBO) is registered in Brussels as a
branch of a UK parent company namely, The Law Society Service Limited.
The branch monitors European legislation and represents the interests of The
Law Society of England and Wales, The Law Society of Scotland and The
Law Society of Northern Ireland. The branch is funded by The Law Society of
England and Wales with contributions from the other two Law Societies. The
branch also has a trading activity in that it sells legal reports to the Dutch Bar.
B
Banking / Accounts
B.1
The branch has its own banking arrangements and income and expenditure is
accounted for via imprest systems for salaries and office costs. These
imprest returns are made monthly to the Finance department in London. The
branch is required to file accounts with the Belgian National bank though
these accounts may be the main Law Society’s annual consolidated accounts
translated into French. The branch is also required to draw up local accounts
to comply with Belgian GAAP for local tax and VAT reasons.
Financial Policies & Procedures
August 2004 (Rev 1)
Section 8 – Page 25
Section 8: Statutory Accounting
8.18
The Law Society Pension Scheme Limited
A
Introduction
A.1
The Law Society Pension Scheme Limited is a registered company, limited by
guarantee. It is a wholly owned subsidiary of the Law Society (TLS) the
ultimate parent undertaking.
A.2
There are 7 Directors as follows: 2 member nominated directors; 1 pensioner
member director; 2 Council nominated directors; 1 management
representative director and the independent chairman. The Council
nominates management representative directors put forward by the Finance
& Resources Board (F&R) of TLS. Currently the Head of HR is the
management representative on the Pensions Board, which is chaired by an
independent part-time Board Member.
A.3
The company does not have share capital and each member’s liability is
limited (by guarantee) to £1.
B
Purpose
B.1
The limited company was incorporated on 14 September 1988, does not
trade and has no assets or liabilities. It is solely engaged in acting as Trustee
of The Law Society Pension Scheme.
B.2
The scheme is governed by the trust deed and rules and is approved as an
“exempt approved scheme” under the terms of the Income and Corporation
Taxes Act 1988.
B.3
The trustees are responsible for the assets of the scheme and to ensure
compliance with applicable United Kingdom law and accounting standards.
Trustees are required to make available to scheme members, beneficiaries
and certain other parties audited accounts for the scheme.
B.4
Trustees are also required to ensure that there are prepared, maintained and
from time to time revised schedules of contributions payable towards the
scheme by and on behalf of the employers and active members of the
scheme and the dates on or before which such contributions are to be paid.
B.5
The Trustee is also responsible for keeping records in respect of any active
member of the scheme and for ensuring that contributions are made to the
scheme in accordance with the schedule of contributions.
C
Annual Accounts
C.1
The accounting year end is 31 December. The scheme accounts are
prepared in accordance with the Occupational Pension Schemes Regulations
1996 and with guidelines set out in the Statement of Recommended Practice,
Financial Reports of Pension Schemes (SORP).
C.2
Regular trustee board meetings are held and issues raised with the F&R
board of TLS and the Pension Liaison User Group.*
Financial Policies & Procedures
August 2004 (Rev 1)
Section 8 – Page 26
Section 8: Statutory Accounting
8.18
The Law Society Pension Scheme Limited (cont’d)
C.3
The annual accounts are prepared by Cheviot Pension Services Ltd. A fee is
payable by TLS for this outsourced accounting function. The accounts are
audited by Moore Stephens, approved by the Pension Board and formally
adopted at their AGM.
C.4
The fees for the management of the pension scheme i.e. costs of the
Chairman and independent Advisers (Investment advisers, Actuaries,
Solicitors, Scheme Administration and Consultancy) are paid by TLS.
C.5
The results of the limited company (currently nil) are incorporated within the
consolidated accounts of TLS.
D
Directors’ Responsibilities
D.1
To approve the accounts of the company and the scheme.
D.2
To appoint independent advisers to the scheme and to approve resolutions
pertaining to directors appointment, directors resignations, and audit
appointment.
D.3
The part-time Chairman is the only remunerated Director of the Board.
D.4
Directors are included within the Law Society’s professional indemnity
insurance policy.
*members are the Treasurer, two other Finance & Resources Board members, the Director of
Finance & Resources, the Chairman of the Pension Scheme and the Chief Executive of
Cheviot Trust
Financial Policies & Procedures
August 2004 (Rev 1)
Section 8 – Page 27
Section 8: Statutory Accounting
8.19
Retirement Benefit Scheme
A
Introduction
A.1
Financial Policies & Procedures
August 2004 (Rev 1)
Section 8 – Page 28
Section 8: Statutory Accounting
Appendix 1: Accounting Standards
Detailed below is a list of UK accounting standards currently in force as at April 2004.
Number
IFRS 1
FRSSE
FRS 1
FRS 2
FRS 3
FRS 4
FRS 5
FRS 6
FRS 7
FRS 8
FRS 9
FRS 10
FRS 11
FRS 12
FRS 13
FRS 14
FRS 15
FRS 16
FRS 17
FRS 18
FRS 19
FRS 20 (IFRS2)
(FRS no. not known
(IFRS3)
SSAP 4
SSAP 5
SSAP 9
SSAP 13
SSAP 15
SSAP 17
SSAP 19
SSAP 20
SSAP 21
SSAP 24
SSAP 25
Accounting Standards currently in issue
First time adoption of international accounting standards
Financial Reporting for Smaller Entities
Cash Flow Statements (revised 1996)
Accounting for Subsidiary Undertakings
Reporting Financial Performance
Capital Instruments
Reporting the substance of transactions
Acquisitions and mergers
Fair values in Acquisition Accounting
Related Party Disclosures
Associates and joint ventures
Goodwill and intangible Assets
Impairment of Fixed Assets and Goodwill
Provisions, Contingent Liabilities and Contingent Assets
Derivatives and other Financial Instruments: Disclosures
Earnings per share
Tangible Fixed Assets
Current tax
Retirement Benefits
Accounting Policies
Deferred Tax
Share-based payment
Business combinations
as yet)
Accounting for government grants
Accounting for Value Added Tax
Accounting for stocks and Long term contracts
Accounting for research and development
Status of SSAP 15
Accounting for post balance sheet events
Accounting for Investment properties
Foreign currency translation
Accounting for leases and hire purchase contracts
Accounting for pension costs
Segmental reporting
UITF (Urgent Issues Task Force) abstracts are issued by the ASB where
unsatisfactory or conflicting interpretations have developed (or seem likely to
develop) about a requirement of an accounting standard or the Companies Act. The
UITF seeks to arrive at a consensus on the accounting treatment that should be
adopted, in such cases, in the context of the ASB's declared aim of relying on
principles rather than detailed prescription.
Financial Policies & Procedures
August 2004 (Rev 1)
Section 8 – Page 29
Section 8: Statutory Accounting
Appendix 1: Accounting Standards (cont)
Number
UITF 4
UITF 5
UITF 9
UITF 11
UITF 15
UITF 17
UITF 18
UITF 19
UITF 21
UITF 22
UITF 23
UITF 24
UITF 25
UITF 26
UITF 27
UITF 28
UITF 29
UITF 30
UITF 31
UITF 32
UITF 33
UITF 34
UITF 35
UITF 36
UITF 37
UITF 38
Urgent Issues Task Force Abstracts
Presentation of long-term debtors in current assets
Transfers from current assets to fixed assets
Accounting for operations in hyper-inflationary economies
Capital instruments: issuer call options
Disclosure of substantial acquisitions
Employee share schemes
Pension costs following the 1997 tax changes in respect of dividend
income
Tax on gains and losses on foreign currency borrowings that hedge
an investment in a foreign enterprise
Accounting issues arising from the proposed introduction of the euro
The acquisition of a Lloyds business
Application of the transitional rules in FRS15
Accounting for start-up costs
National Insurance contributions on share options gains
Barter transactions for advertising
Revision to estimates of the useful economic life of goodwill and
intangible assets
Operating lease incentives
Website development costs
Date of award to employees of shares or rights to shares
Exchanges of businesses or other non-monetary assets for an
interest in a subsidiary, joint venture or associate.
Employee benefit trusts and other intermediate payment
arrangements
Obligations in capital instruments
Pre-contract costs
Death-in-service and incapacity benefits
Contracts for sales of capacity
Purchases and sales of own shares
Accounting for ESOP trusts
The process to production of a final FRS usually involves the publication of a
discussion paper and then a Financial Reporting Exposure draft (FRED).
FREDs currently in issue are listed on the next page:
Financial Policies & Procedures
August 2004 (Rev 1)
Section 8 – Page 30
Section 8: Statutory Accounting
Appendix 1: Accounting Standards (cont)
Number
FRED 24
FRED 25
FRED 26
FRED 27
FRED 28
FRED 29
FRED 30 and
supplement
FRED 32
Exposure drafts in issue
The Effects of Changes in Foreign Exchange Rates: Financial
Reporting in Hyperinflationary Economies
Related Party Disclosures
Earnings Per Share
Events After the Balance Sheet Date
Inventories; Construction and Service Contracts
Property, Plant and Equipment; Borrowing Costs
IASB Proposals To Amend Certain International Accounting
Standards (Consultation Paper)
Financial Instruments
Disposal of Non-current Assets and Presentation of Discontinued
Operations
Discussion papers
UK accounting standards – A strategy for convergence with IFRS
A ‘one-stop’ shop FRSSE
Statement of Principles for Financial Reporting - Proposed Interpretation for Public
Benefit Entities
ED Amendment to FRS 5 'Reporting the Substance of Transactions': Revenue
Recognition
Review of FRSSE
Year-end financial reports
Leases: Implementation of a new approach
Financial Policies & Procedures
August 2004 (Rev 1)
Section 8 – Page 31
Section 8: Statutory Accounting
Appendix 2: Accounting for Leases
A
Introduction
A.1
There are two types of leases, finance leases and operational leases.
A.2
Under International accounting standards there will be one method of
accounting for leases, this is likely to be finance lease method.
A.3
A Finance lease is defined as any lease where substantially all the risks and
rewards of ownership of the leased asset are transferred to the lessee.
Finance leases are capitalised within the accounts.
A.4
All hire purchase contracts will normally be finance leases, but not all finance
leases will be hire purchase contracts, as in many cases the lessee will never
in law, own the asset. [A hire purchase contract involves entering into an
agreement/contract to hire an asset for a certain period of time at an agreed
rental. At the end of the period the user has the right to buy the asset for a
nominal sum].
A.5
An operating lease is defined as any lease which is not a finance lease.
Operating lease costs are charged to the income and expenditure account
[e.g. 3 year leases, car leases].
A.6
In practice, an operating lease is one where the LESSEE DOES NOT own the
asset at any stage OR take responsibility for maintenance of the asset OR
have the right to use the asset for all (or virtually all) of the useful life of the
asset.
B
Differences Between Finance and Operating Leases
B.1
The easiest way to see what the difference is between a finance lease and an
operating lease is to look at a number of factors in the lease contract and see
how they relate to those factors set out on the following page. The distinction
between the two types of leases is not precisely defined – it is one of principle
not one of percentages.
.
Financial Policies & Procedures
August 2004 (Rev 1)
Section 8 – Page 32
Section 8: Statutory Accounting
Appendix 2: Accounting for Leases (cont)
QUESTION
FINANCE LEASE
OPERATING LEASE
Who is the lessor?
Normally a financial institution
Someone involved in that
industry as manufacturer, retailer
or repairer.
What happens at the
end of the minimum
lease period?
Lessee has he right to either buy
or continue to rent the asset for a
nominal sum or a sum based on
the residual value, if any.
The lessor will either take the
equipment back or a new
contract will be negotiated.
Who is responsible
for maintenance?
Maintenance will be covered by
the manufacturers warranty or a
separate maintenance contract
taken out by lessee.
Maintenance will be provided by
the lessor or the lessors agent
and is included in the lease.
Often this is a substantial
element in an operating lease.
How long does the
lease last?
For all or virtually all of the useful
life of the asset.
This could be for a period of one
hour (or less) to many years.
What is the basis of
the rental charge?
This is based on the capital value
and the relevant interest rate
spread in equal instalments over
the minimum rental period.
This is calculated with reference
to the capital cost, maintenance
costs and interest rates but the
charge may be made on a time
period basis or on a usage basis
or combination.
May the lessee
upgrade the asset
as new models
come out or
requirements
change?
There will be no such right in the
contract but it may be negotiated.
There may be this option
Is the lease
restricted to one
specific asset?
Yes.
This will depend on the lease.
The lessee may rent from the
lessor a specific asset or be
allowed to use a certain type of
asset
Will the lessee be
given a replacement
asset while the
original is being
repaired?
This will depend on the
manufacturer’s warranty or the
maintenance contract.
Either there will be a replacement
given or a rebate given for the
period the asset is out of use.
C
Lease or Buy (Assuming you are given a choice)
C.1
If flexibility to upgrade in the future as requirements change and new models
come onto the market is the most important factor, then an operating lease
would be preferable. Also if a substantial part of using the asset relates to
repairs and maintenance, then an operating lease would be preferable.
C.2
If it is your intention to keep the asset for all or substantially all of its useful
economic life, then buying for cash or talking out a finance lease will be
preferable.
Financial Policies & Procedures
August 2004 (Rev 1)
Section 8 – Page 33
Section 8: Statutory Accounting
Appendix 2: Accounting for Leases (cont)
D
Lease or Buy (Assuming you are given a choice)
D.1
A finance lease spreads the cost of the asset over the useful economic life of
the asset and this would have a favourable effect on the Society’s cash
position in the short term. In the long term (re cash flow) there is no difference
between cash or finance lease.
D.2
The important consideration is the interest rate the Society receives on its
deposits, the interest rate it would suffer if the Society went overdrawn and
the interest rate implicit in the lease. This is a judgement where the Finance
department can help - please contact the Chief Financial accountant (x4433)
or the Head of Operations and Customer Services (x4659) for guidance.
E
Accounting Treatment of Finance Leases
E.1
The rental payments made are divided into two elements, the capital
repayment element and the interest element (rather like a repayment
mortgage). The capital element is used to reduce the original capital balance
and the interest element is charged to the income and expenditure account in
the year it is paid. The capital balance reduces with each rental payment, the
interest charge which is calculated on the outstanding capital balance at the
time of the payment, will be less each time and accordingly, the capital
payment will be more each time.
F
Authorisation
F.1
For short term operating leases (hire of mini bus for a day trip) and operating
leases where payments are made by instalments, procedures are
incorporated within the purchase order system.
F.2
However, where leases cover more than on financial year, a special
authorisation procedure would be required BEFORE any order is placed
because it may be necessary to enter into a lease agreement before the
budget for one or more of the years covered has been set. In these
circumstances, the budget holder would need to satisfy his/herself that the
expenditure will be of benefit to the Society over the whole period of the
lease. And also, that it is reasonable to assume that the budget for the lease
is likely to be available in future years.
F.3
In addition, it is a requirement in the financial accounts that the values of
operating lease commitments (expiring between two and five years) is
disclosed in the notes to the accounts. It is therefore important to ensure that
the terms of all new leases are notified to the Finance department.
F.4
Approval of lease agreements by:

the budget holder;

the Head of Facilities Management;

the Director of Finance and Resources.
Financial Policies & Procedures
August 2004 (Rev 1)
Section 8 – Page 34
Section 8: Statutory Accounting
Appendix 3: Adoption of International Accounting Standards
A
Background
A.1
The International Accounting Standards Board (IASB) is responsible for
setting International Standards and will issue International Financial Reporting
Standards (IFRS). All international accounting standards (IAS) issued by
IASB’s predecessor, the International Accounting Standards Committee
(IASC) will continue to apply until they are amended or withdrawn by the
IASB.
A.2
The IASB and the US Financial Accounting Standards Board (FASB) recently
announced a short-term project to reduce differences between IAS and US
GAAP, therefore IAS will be re-written
A.3
There are also differences between IFRS and UK GAAP. UK GAAP will
therefore change to mirror IFRS/IAS.
A.4
The European Union approved legislation (in June 2002) that will require all
EU listed companies that have securities traded on any EU regulated market
(publicly traded companies) to prepare consolidated financial statements in
accordance with IFRS.
A.5
The regulation applies to accounting periods beginning on or after 1 January
2005. Member states may extend the application to non-consolidated
financial statements and to entities other than non-publicly traded companies.
A.6
Although International standards apply to consolidated accounts only, it will
have to be adopted by all companies in the group to make reconciliation and
analysis easier. Any decision to adopt International standards is irreversible.
A.7
The IASB has promised to issue all IAS by 31 March 2004.
B
IAS AND THE LAW SOCIETY
B.1
Annual accounts produced for December 2005 will need to be produced
under IFRS and comparisons for December 2004 under international
standards will also need to be made.
B.2
The Law Society (to date) has adopted all accounting standards and although
it is not a listed company is likely to prepare all its 2005 financial statements
under IAS to facilitate comparisons and to uphold the true and fair view.
C
IMPLICATIONS FOR THE LAW SOCIETY
C.1
Most of the changes resulting from the adoption of IAS will affect companies
working in the financial sector (derivatives, hedging, share options,
investment properties, goodwill, acquisition and mergers), with very little
impact for The Law Society. As the standards are not finalised as yet, any
assumptions made about impact can easily change if the final standards differ
greatly to those currently in issue.
C.2
A new Performance Statement will be issued to replace the income and
expenditure statement and the current statement of recognised gains and
losses. This is not likely to have any major impact on our current reporting.
Financial Policies & Procedures
August 2004 (Rev 1)
Section 8 – Page 35
Section 8: Statutory Accounting
Appendix 3: Adoption of International Accounting Standards (cont)
C.3
All leases (3+ years) will become finance leases and will be shown on the
balance sheet, e.g. car leases, photocopier leases, property leases. The
Society will have to obtain additional information from the lessor and show the
asset cost and liabilities on the balance sheet, these figures will have to tie up
with the lessors figures (also shown on their balance sheet). The Society
currently do not have any finance leases.
C.4
Cash flow statements will need to be revised.
C.5
The Society will have to identify capital (fixed assets) items earmarked for
disposal at the year end, then declassify them, stop depreciation and revalue
for the annual accounts.
C.6
Related party transaction disclosure requirements are broadly similar,
however the names of controlling parties may be required to be disclosed but
the names of transacting related parties is not required.
C.7
Last in first out (LIFO) basis of stock valuation is not recognised under IAS,
however this will not affect the Society as LIFO method of valuing stock is not
used and stocks are not a major problem. The value as at 30 November
2003 was £50k.
C.8
Retirement benefits reporting requirements have been delayed until the
adoption of IAS. Currently under IAS listed companies can average the
market values over a number of years and/or spread the gains/losses forward
in the accounts over the service lives of all employees. This standard is
currently being revised by IASB.
C.9
A separate report of directors’ remuneration disclosures will be sent to
companies house disclosing for each director emoluments, compensation for
loss of office, long term incentive schemes, pensions and sums paid to third
parties in respect of directors services.
D
TAXATION
D.1
The Inland Revenue recently decided to accept accounts produced under
international standards for taxation purposes. This means that a separate set
of accounts (as at present) will NOT be produced for taxation purposes.
E
DELOITTE & TOUCHE VIEW ON INTERNATIONAL STANDARDS
E.1
Listed Companies will be required to prepare their financial statements under
International Accounting Standards (‘IAS’) from 2005. Although the Law
Society will not be required to prepare its financial statements under IAS for
the year ending 31 December 2005 it may choose to do so for the following
reasons:

Whilst reporting under IAS may not be mandatory for the Society, the
Society may consider it ‘best practice’ to report under IAS in a similar way
to which it has chosen to follow the Combined Code on Corporate
Governance;
Financial Policies & Procedures
August 2004 (Rev 1)
Section 8 – Page 36
Section 8: Statutory Accounting
Appendix 3: Adoption of International Accounting Standards (cont)

The Accounting Standards Board is bringing the UK into line with IAS as
part of a convergence project which is already underway. On the basis
that ultimately the Society will need to follow these standards if it is to
receive a true and fair opinion on its financial statements, it may chose to
adopt them sooner rather than later;
E.2
Should the Society choose to present its financial statements under IAS for
the year ending 31 December 2005, in order to present comparatives to 31
December 2004, the opening position at 1 January 2004 should need to be
established.
E.3
The implementation of IAS is a highly complex project which cannot be
undertaken lightly. There is likely to be an impact on the Society’s reporting in
a number of areas which will include, but not be limited to:
E.4

Pensions;

Deferred Taxation;

Leases;

Revenue Recognition;

Presentation of the Profit & Loss Account;

Derivative Contracts.
Whilst we will continue to keep the Society up to date of any changes to
current United Kingdom accounting standards, should the Society choose to
adopt IAS, we could assist in two ways:

Perform an Impact Analysis of IAS for the Society which would assist the
Society with the necessary conversion requirements;

Perform a full IAS conversion exercise.
Financial Policies & Procedures
August 2004 (Rev 1)
Section 8 – Page 37