BIM74115 - Abolition of the cash basis: requests to approve basis of valuation

This guidance relates to accounting periods before the issue by the Accounting Standards Board (ASB) of Urgent Issues Task Force (UITF) Abstract 40 in March 2005. UITF 40 applies for accounting periods ending on or after 22 June 2005. Further guidance is at BIM74200 onwards. See in particular Appendix 2 paragraph 1 in BIM74275 in relation to the ICAEW’s guidance TAX30/98 (see BIM74130).

Exercise caution when asked to approve a valuation basis

The other way in which you may become involved is if taxpayers or their advisers ask you to ‘approve’ their proposed basis, especially their proposed way of valuing work in progress. You should be very cautious about agreeing to such requests. There are a number of reasons for this

• First it is inconsistent with the ethos of SA, under which taxpayers have to take responsibility for the contents of their return (for example we do not currently ‘approve’ the basis on which traders value their stock).
• Second, the basis on which accounts are prepared is essentially a question of the correct application of GAAP, and this is a matter on which you should avoid comment without taking expert accountancy advice.
• Third, the question of what is a proper basis will normally depend on the precise way in which the taxpayer does business and on the firm’s administrative systems, so you are unlikely to be able to comment on a proposed basis without detailed factual enquiry.
• Fourth, we do not want a now abolished national practice (SP/A27) to be replaced by a collection of local practices which may or may not accord with the law, but which will be very difficult to disturb once agreed.