Q: Can you clarify 'latest financial year ending' date in section C5?
A: The firm asking the question noted: in this section, at C5.2 the guidance says that 'Firms should report the amount of total income in their most recent audited (or other) financial statement, and an estimate of income for the current reporting year'. We have a financial year end of 31 December, but when we come to complete our MLAR for say 30 June:
a) how do we interpret 'latest financial year ending' date?
b) what is meant by 'other' in 'audited (or other) financial statement' above?
The answers are as follows:
a) Latest financial year ending date
- 'latest financial year' for C5 means a firm's normal accounting year up to its financial year end (ie its accounting reference date). Here, given the firm is contemplating its MLAR for the financial quarter ending 30/6/05, it would refer to the financial year ending 31 Dec 2004
- the reason for using 'latest financial year' is because this is how the measure is defined in PRU 9.3
- 'current financial year' would then mean 12 months on from the other one, and so here it is for financial year ending 31 December 2005
- the reason for using both 'latest' and 'current' is that, since 'total income' is potentially a more volatile measure than 'total assets' in C4, it enables us to assess a firm's anticipated capital requirement for the current financial year as well as the historic position.
- when completing MLAR for the financial quarter end that coincides with the firm’s financial year end, the 'latest financial year ending date' is the same as the quarter end date. 'Current financial year ending date' is then 12 months on from that date.
b) Examples of 'Other' for 'audited (or other) financial statement'
- one example is where a firm is not necessarily required to have its accounts audited
- another example is when a firm comes to prepare its MLAR for the financial quarter end that coincides with its financial year end: in this case for 31 December 2005. At that time, we would anticipate that a firm would report 31/12/05 as the 'latest financial year ending' in C5, and 31/12/06 in the adjacent column for 'current financial year ending'. For some firms their accounts may well have been audited by the time the MLAR is due for completion, but where this is not the case then the term '(or other) financial statements' has relevance and should be taken to mean that a firm will use its own internal/management accounts as a basis for entering this information in C5.
Q: If we undertake both mortgage lending and mortgage administration activities, should we complete C4 and C5 or just C4?
A: Only one of C4 or C5 should be completed. So in this case, just use C4.
Q: Can you advise how Share Premium Accounts should be treated in Section C of the MLAR return?
A: The firm asking the question noted: we intend to capitalise a loan from our parent company, issuing some share capital but also creating a share premium reserve. As it is a capitalisation of a loan, the share capital will be fully paid. Should the Share premium sit in 'C1.3 Issued Capital' or in 'C1.1 Reserves'? If it is to sit in reserves (C1.1), does it need to have been audited first?
The value of the share premium a/c should be included in Audited reserves, see guidance at C1-2 item (3) in the Completion Notes for MLAR, reproduced below:
'Audited reserves are audited accumulated profits retained by the firm (after deduction of tax, dividends and proprietors' or partners' drawings) and other reserves created by appropriations of share premiums and similar realised appropriations. Reserves also include gifts of capital, for example, from a parent company. For partnerships, audited reserves include partners' current accounts according to the most recent financial statement.'
Hence the value of the share premium a/c should be reported within C1.1. However, since it is described as 'other reserves' above, and not as 'other audited reserves', it is not required to be audited before inclusion.