'Too little, too late' was a constant criticism during the financial crisis when it came to recognising bad debt losses. That's why the International Accounting Standards Board (IASB) has announced new accounting proposals, which will change the way you account for your business' bad debts. Here's what you need to know...
If analysing your business' financial records is already proving to be a headache, brace yourself.
The International Accounting Standards Board (IASB) has issued new proposals for minimising bad debt losses.
Confused? Don't be.
Bad debt is when you're owed money and other income that's accrued to your business, such as interest charged on an overdue account, but the debtor defaults in paying the debt due to you… and you've got little or no possibility of recovering the outstanding balance, explains The Practical Accountancy Loose Leaf
Here's how you'll need to change the way your business accounts for bad debts…
says the International Accounting Standards Board (IASB) has proposed that companies will need to re-examine how they currently provide for bad debts in their financial statements by integrating forward-looking data.
It sounds like more of an admin hassle but it's actually a good thing, as you'll recognise larger credit impairment losses sooner.
By doing so, you'll be able to get SARS to pay you back for a portion of your company's bad debt, says FSPBusiness
It's not expected to be all plain sailing though – it could be difficult to implement forward-thinking data, as no one can see into the future, so a difference between the future outlook and the actual result is to be expected.
But don't worry – you have time to get everything in order to implement this.
The proposed changes won't be implemented for a while yet, but keep an eye on your doubtful debts in the meantime…
Comments on the proposals are open until 5 July 2013 and the proposals are expected to only become effective for annual financial periods beginning on or after 1 January 2015, adds SAICA
But you can start by examining your list of 'doubtful debts' and see if they're likely to be recognised as bad and unrecoverable in the next financial period.