by John McCarthy Consulting Ltd. | Aug 13, 2025 | Blog, News
In this second of two blogs, we look at the impact of the leasing changes to FRS 102 coming soon. Last week we looked at the main balance sheet impact. This week we look at the P&L impact.
The familiar rent expense in the P&L will largely disappear and will be replaced by:
- Depreciation of the ROU asset, along with an
- Interest expense for the lease liability.
The impact of these changes will often result in a higher EBITDA (Earnings Before Interest, Tax, Depreciation, and Amortisation) as lease costs move from operating expenses to depreciation and finance costs.
The other impacts will be:
- Businesses, not for profit entities and charities with loan agreements tied to financial covenants (e.g., debt-to-EBITDA ratios, interest cover) will need to carefully assess the potential impact of these changes. The sooner they start having conversations with lenders the better.
- An increase in reported assets could push some businesses over the audit exemption size thresholds, potentially triggering the requirement for a statutory audit.
Work to be done:
The preparatory work to be done in advance of 1 January 2026 will include:
- Identifying all affected lease contracts
- Identifying leases ‘hidden’ within service agreements
- Obtaining detailed information from lease agreements so as to have an accurate calculation of the ROU asset and lease liability along with the payment schedules, extension options, and an appropriate discount rate.
This change in Irish GAAP lease accounting is a significant one, promising more transparency but also requiring advance preparation. The sooner the changes are understood, the sooner businesses and charities/not for profit entities can plan to ensure effective compliance by the application date.
For audit cold file reviews and tailored training sessions explaining more about various topics like AML, Audit, FRS 102, please send a mail to john@jmcc.ie.
For more on engagement and representation letter templates and a variety of CPD webinars on money laundering and other accounting/audit related topics, please go to our website for:
ISQM TOOLKIT, or if you prefer to chat through the different audit risks and potential appropriate responses presented by this new standard. We typically tailor ISQM training and brainstorming sessions to suit your firm’s unique requirements. Please contact John McCarthy FCA by email at john@jmcc.ie.
by John McCarthy Consulting Ltd. | Aug 13, 2025 | Blog, News
In this first of two blogs, we look at the impact of the leasing changes to FRS 102 coming soon.
For accounting periods commencing on 1 January 2026, lease liabilities for most entities will now be on the balance sheet at 31 December 2026 and could spell trouble for EBITDA, loan covenants, and audit thresholds. The changes do not apply to micro entities (if they qualify to apply FRS 105).
Heretofore many businesses in Ireland have enjoyed the relative simplicity of ‘off-balance sheet’ accounting for their operating leases where a rent expense hit the P & L account, and for a multitude of entities, that was the end of the matter.
However, there is a significant change coming soon for Irish Generally Accepted Accounting Practice (known as Irish GAAP) under the Financial Reporting Standard (FRS) 102, bringing the treatment of lease accounting more in line with the international standard, International Financial Reporting Standard (IFRS) 16 Leases.
The good news is that there is some time to prepare, but not too long as there needs to be advance preparation but only four months at this stage.
The main change is that FRS 102 introduces the concept of the ‘right-of-use’ (ROU) model for lessees, largely based on IFRS 16 and virtually all leases will come on balance sheet. Businesses and charities will soon be required to recognise:
- A Right-of-Use (ROU) Asset: This asset represents the lessee’s right to use the leased asset over the lease term. It will appear on the balance sheet, typically alongside property, plant and equipment; and an equivalent
- A lease liability: This liability represents the obligation to make lease payments over the lease term. It will also be recognised on the balance sheet, divided into current and non-current portions.
Impact on financial statements
The impact of this change will be significant for many businesses and not for profit entities, particularly those with a substantial portfolio of operating leases. Examples include:
- Retailers with multiple leases,
- Manufacturers leasing machinery and
- Logistics firms with rolling fleet contracts.
These businesses can expect their balance sheets to grow, with an increase in both assets (ROU assets) and liabilities (lease liabilities). This will change key financial ratios, such as
- leverage and
- debt-to-equity.
More on this topic next week.
For audit cold file reviews and tailored training sessions explaining more about various topics like AML, Audit, FRS 102, please send a mail to john@jmcc.ie.
For more on engagement and representation letter templates and a variety of CPD webinars on money laundering and other accounting/audit related topics, please go to our website for:
ISQM TOOLKIT, or if you prefer to chat through the different audit risks and potential appropriate responses presented by this new standard. We typically tailor ISQM training and brainstorming sessions to suit your firm’s unique requirements. Please contact John McCarthy FCA by email at john@jmcc.ie.
by John McCarthy Consulting Ltd. | Aug 8, 2025 | Blog, News
As we forecast in our 1 July blog, the Financial Reporting Council published new draft guidance to assist auditors of Smaller Less Complex Entities with the audit process.
The new Practice Note (PN) is called ‘Guidance for Auditors of Smaller Less Complex Entities’ loosely based on the well-loved Practice Note 26 ‘Guidance on Smaller Entity Documentation’, which was withdrawn in 2018. It contains some of the examples from the original PN 26 updated for the latest trends in accounting software by including mention of Xero and Quickbooks.
PNs are well regarded among the audit profession as indicative of best practice and are intended to assist auditors and regulators alike, in applying auditing standards of general application to particular circumstances and industries and are regarded as persuasive rather than prescriptive. According to the Financial Reporting Council, the draft PN may already be used in helping auditors to determine what best practice audit documentation should look like in the audit of a small or less complex entity.
This PN is designed to assist auditors in applying auditing standards of general application to particular circumstances and industries.
The draft PN is available for consultation until 17 October 2025, and the final version should be published by Q4 of 2025.
According to the draft PN the characteristics that typically define smaller and/or less complex entities are:
- Ownership and control are often concentrated among a few individuals.
- Operations are uncomplicated, with limited sources of income and activities.
- Business processes and accounting systems are simple, with few internal controls.
- Entities may include small companies, charities, and larger entities with simple structures.
- Complexity may arise in specific areas, such as accounting estimates, even in otherwise simple entities.
For audit cold file reviews and tailored training sessions explaining more about various topics like AML, Audit, FRS 102, please send a mail to john@jmcc.ie.
For more on engagement and representation letter templates and a variety of CPD webinars on money laundering and other accounting/audit related topics, please go to our website for:
ISQM TOOLKIT, or if you prefer to chat through the different audit risks and potential appropriate responses presented by this new standard. We typically tailor ISQM training and brainstorming sessions to suit your firm’s unique requirements. Please contact John McCarthy FCA by email at john@jmcc.ie.
by John McCarthy Consulting Ltd. | Jun 25, 2025 | Blog, News
The UK’s National Crime Agency magazine (SARS in Action Issue 31) published in April 2025, highlighted a growing financial crime about which accountants need to be aware.
Umbrella Company (MUC) Fraud is a type of organised labour fraud where a large, temporary workforce is disaggregated into multiple, small, limited companies (MUCs) by organised crime groups (OCGs).
We bring this to our reader’s attention, especially to the Money Laundering Reporting Officers (MLRO) out there, as criminals know no borders and such MUC fraud may be happening in Ireland right now.
It costs the UK Exchequer alone hundreds of millions of pounds every year. HMRC is aware that OCGs regularly target the temporary labour sector and have several ongoing investigations using a full range of civil and criminal powers, in parallel, to provide the most effective and immediate response.
The fraud is operated by an OCG that breaks down one temporary labour provider, low in the supply chain, into hundreds of MUCs allowing each to build up debts to the government and/or take advantage of Government incentives aimed at small businesses. Each MUC then dissolves.
The OCG often uses stolen or fraudulently purchased identities for the MUCs directorships, to avoid personal association, including foreign nationals. There is no standard model for MUC fraud. It is constantly evolving, as OCGs try to hide their fraudulent activities.
However, MUCs often only employ a few (mostly unaware) workers and there is always a promoter/umbrella-style business further upstream in the supply chain that organises the structure of the MUCs, which is sometimes known as an ‘outsourcing business’, with other linked, administration style businesses to support the operation.
Signs to watch for:
Some tell-tale signs to watch out for that may indicate the presence of a MUC:
- Large volumes of companies registered at the same address, often residential/non- business addresses.
- Periods of dormancy after bank account inception.
- Companies that hold the bank accounts lack an online presence.
- Few or no payments to HMRC.
- Receipts of large payments from recruitment agencies from the opening of the account, far in excess of the anticipated turnover or not consistent with the declared business type.
- Profits from the fraud are often extracted internationally by the OCGs, disguised as fees, admin expenses and other purchases, often through companies and bank accounts also based abroad.
- Links to/use of nonbank Payment Service Providers (NBPSPs) that use FinTech/Blockchain technology and Alternative Payment Systems (APS) to provide financial services without a traditional banking license.
For audit cold file reviews and tailored training sessions explaining more about various topics like AML, Audit, FRS 102, please send a mail to john@jmcc.ie.
For more on engagement and representation letter templates and a variety of CPD webinars on money laundering and other accounting/audit related topics, please go to our website for:
ISQM TOOLKIT, or if you prefer to chat through the different audit risks and potential appropriate responses presented by this new standard. We typically tailor ISQM training and brainstorming sessions to suit your firm’s unique requirements. Please contact John McCarthy FCA by email at john@jmcc.ie.
by John McCarthy Consulting Ltd. | Jun 25, 2025 | Blog, News
The above report was published by the Institute of Chartered Accountants of Scotland (ICAS) in May 2025 and reported on by Accountancy Age in mid-June 2025.
The authors of the report emphasise the need for audit quality to remain unaffected by private equity’s growing influence in the profession, while acknowledging the value of identifying models different from the traditional partnership approach.
The paper assesses both risks and opportunities of private equity investment, given the uncertainty over the medium-to-long term impact on the audit profession. It highlights that the rules on ownership of audit firms have not been revisited in-depth for several years.
The ICAS report explains that the environment in which audit firms and wider business are operating continues to change at pace due to various societal factors:
- technological advances, including AI;
- geopolitical uncertainty; and
- sustainability related matters.
The audit profession itself continues to evolve as firms look to deploy greater use of AI tools, with the likelihood of more change in the profession in the next five years than in the last 50.
Whilst such a rapidly changing environment needs to be factored into considerations when examining the funding model for audit firms; government, the report highlights the fact that ‘regulators and professional bodies need to be cognisant of the accountancy profession’s duty to act in the public interest and the important role that audit plays in the allocation of capital’.
The report emphasises that an open and well-balanced approach to the question of private equity investment in audit firms is likely to identify both risks and opportunities which include the following:
| Opportunities |
Risks |
| Succession planning |
Audit quality |
| Capital investment which may enhance audit quality |
Ethical challenges |
| Growth with economies of scale |
Market impact (fees, limited choice etc.) |
| Successful partnerships between firms and investors |
Culture |
| |
What happens next |
Read the report here.
For audit cold file reviews and tailored training sessions explaining more about various topics like AML, Audit, FRS 102, please send a mail to john@jmcc.ie.
For more on engagement and representation letter templates and a variety of CPD webinars on money laundering and other accounting/audit related topics, please go to our website for:
ISQM TOOLKIT, or if you prefer to chat through the different audit risks and potential appropriate responses presented by this new standard. We typically tailor ISQM training and brainstorming sessions to suit your firm’s unique requirements. Please contact John McCarthy FCA by email at john@jmcc.ie.
