Accounting principles and practices

Investor considerations                                                                                                  

• There are minimal disclosure requirements.
• International Accounting Standards are generally applied, but there is no statutory requirement to do so.

Accounting principles

Accounting standards published by the International Accounting Standards Committee are generally accepted in Montserrat.                                             

Form and content of financial statements                                                                        

Basic financial statements

Financial statements usually include a balance sheet plus statements of income and retained earnings, statements of changes in financial position, significant accounting policies, and appropriate disclosures by way of notes. Comparative figures for the previous period are not required by law but are usually included.                                

Income statement                                                                                                             

Revenue and cost of sales are usually shown in the income statement, as are depreciation, interest and other expenses.

Capital                                                                                                                                

When shares are issued at a price above par value, the excess is shown as a share premium which may be utilized to issue fully paid bonus

shares to shareholders. Details of bonus issues (stock dividends) are disclosed in the financial statements. A company is not permitted to purchase its own shares.

Valuation of assets

Inventories are valued at the lower of cost or net realizable value, cost being determined by any of the generally accepted methods. It should be noted that the LIFO method is not acceptable, particularly for tax purposes. Real property and other fixed assets are normally recorded at historic cost, but

inflationary trends have encouraged many enterprises to revalue fixed assets.

Depreciation is calculated on either the declining-balance or straight-line method. It is normal for freehold buildings to be depreciated.

Purchase of another business

Purchase of another business is invariably accounted for by the purchase method. The write-off of goodwill arising on the purchase is not deductible for tax purposes. The accepted rate of amortization is over the useful economic life.

Consolidation

Consolidations are carried out by many businesses and, in accordance with International Accounting Standards, associated companies are often accounted for by the equity method.

Provisions and reserves

As prescribed by International Accounting Standards, some companies have adopted deferred tax accounting. However, the majority do not recognize deferred tax.

Accounts (footnote) disclosure                                                                                                            

A holding company usually includes a note to the financial statements stating how profits or losses of subsidiary companies have been dealt with in its financial statements. In addition, a company usually states whether any liability is secured on any assets of the company. Normal practice is to include notes regarding such matters as long-term debts, capital commitments, contingent liabilities, and guarantees. Disclosure is made of any underfunding of employees' pension plans, as well as lease commitments.

Taxation

Recording of income

Accounting periods run for 12 months (generally the calendar year).  Income is recorded on the accrual basis.

Book and tax differences

There are no significant differences in book and tax treatment of items of income. Material timing differences that arise in the treatment of asset depreciation and the creation of provisions or reserves are discussed in the taxation section that follows in this Guide.                                                                                                      

Foreign investors

There are no local disclosure requirements.