Understanding Accounts & Taxation
Book-Keeping - Setting Up Financial Systems
Pensions & Superannuation
Tax Return & Expenses Forms
Personal Expense Claim Form
Locum Expenses Claim form
Rental Income & Expenses Form
Accounting Conventions, GPs
Accounts and Superannuation
The annual accounts for your practice prepared
by your accountant and presented at the yearly meeting are the
product of a process that is underpinned by basic accounting conventions.
These conventions have probably never been explained to you as
their relevance has only been academic, but the changes to the
GP superannuation scheme places more emphasis on the conventions
and how they affect the disclosure of profits.
The changes to the GP superannuation scheme
mean that a GP's superannuable income will be based on their share
of profits. Profits are a subjective measure. When income or expenses
are included or excluded they affect the profits and therefore
the measurement of superannuable income.
The first convention to mention is prudence.
This means that accountants have different rules for measuring
income and expenses. Prudence is all about being cautious. Accountants
will bring in expenses if is it possible that they will be realised,
but will only bring in income if it is probable that it will be
received. This impacts directly on the achievement points from
the Quality and Outcomes Framework. Your accountant will have
seen what you have told the PCO that you will have aspired to,
but will want to know what you think you will achieve. In most
cases, the achievement points will be less than the aspiration
points, and your accountant will be prudent and choose the lower
The reason for this prudent behaviour links
directly with the second accounting convention to mention, that
of accruals or matching. The accounts should include income earned
and expenses incurred in the year, and not just income received
and expenses paid. This allows for the inclusion of debtors (monies
owing to the practice) and creditors (monies owed by the practice)
to give a more accurate picture of the financial position of the
practice at the year end. Once again, this impacts directly on
the achievement points from the Quality and Outcomes Framework.
At the end of the year, you will have received your aspiration
points but are unlikely to have received your achievement points.
To match the income earned to the accounting year the accountant
will bring in the achievement points not yet received, of course
on a prudent basis. You will see these monies owing in debtors.
The third concept to mention is consistency.
The accounts should be prepared on a consistent basis, with no
change in the underpinning principles governing the preparation
of the accounts. For instance, if notional rent due to be paid
to property owning partners has always been shown as an extra
share of profits rather than a practice expense, that should continue
to be the norm. This is primarily to make it possible for the
reader of the accounts to understand and compare the information
in the accounts. This convention is sometimes modified either
when the rules surrounding the payments change, or more frequently
when changing accountants. For example, it will not be obvious
that in the notional rent example mentioned above, one method
precludes obtaining business taper relief for capital gains tax
purposes while the other ensures it. In such a situation, the
accountant would be negligent to ignore the situation and not
change the previous consistent approach.
Finally, we look at the convention of going
concern. Simply stated, this means that the accounts are prepared
on the basis that the practice will continue. We assume that the
practices' assets will continue to be deployed and will gradually
wear out through depreciation. If we did not assume the practice
would be a going concern, would have to value the assets on a
basis that they would be sold. And of course, such a valuation
would have to be applied on a consistent basis, choosing a prudent
value, and accruing the costs of sale.