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Accounting, auditing and financial reporting

The BVCA’s Legal & Accounting Commitee has been involved in a number of work streams in relation to the impact of new accounting and financial reporting standards on the industry in recent years, in particular the EU audit reform.

 
Audit reform
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The BVCA and its Legal & Accounting Committee has been working to minimise any negative impact of the EU audit reform on the private equity industry and has provided updates for members since the directive has been implemented in the UK.

During consultations on the reform by BIS and the FRC, the BVCA successfully advocated the removal of Alternative Investment Funds from the definition of Public Interest Entities (PIE). Additionally, the BVCA strongly argued against extending the EU base legislation when implementing the reform in the UK to minimise the adverse impacts on choice, competition and cost that would arise when a restrictive non-audit regime is combined with mandatory audit firm rotation. In particular, we focussed on ensuring non-listed debt did not fall under the definition of a PIE.

The EU audit reform impacts mandatory firm rotation, audit committees and provision of non-audit services. The reform came into effect on 17 June 2016 and the BVCA produced guidance on areas for consideration by members in the May 2016 Technical Bulletin (see below).


Financial reporting
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Over the last few years, the BVCA has worked to highlight the difference between public and private companies so as to influence financial reporting and accounting bodies from making private company provisions unnecessarily burdensome.

The BVCA has been involved with proposed reporting standards that affect most members. This includes the new UK GAAP and guidance for members as to the options available with respect to financial reporting.

Although the private company regime is most relevant for most UK portfolio companies within private equity and venture capital, financial reporting rules and standards relating to public companies will be considered by the Private Equity Reporting Group and whether they should be adopted by Sir David Walker’s Guidelines on Transparency & Disclosure in Private Equity.


BVCA technical publications on financial reporting
UK accounting standards
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In the UK, companies prepare financial statements in accordance with UK accounting standards issued by the Financial Reporting Council (FRC) unless they meet the requirements to comply with International Financial Reporting Standards (IFRS). Companies with securities (either equity or debt) admitted to trading on a regulated market of any European Union Member State are required to use IFRS (as adopted by the EU) in preparing their consolidated financial statements.

The Statement of Recommended Practice (SORP) assists preparers of financial statements to apply accounting standards to Limited Liability Partnerships.

Two areas that are of particular interest to BVCA members are the valuation of unquoted investments and the investment entities exemption (which permits funds to account for their investments in portfolio companies at fair value rather than consolidating them).

 
Further information

FOR FURTHER INFORMATION PLEASE CONTACT THE BVCA

 +44 (0)20 7492 0400

 policy@bvca.co.uk