Author: Mohammed Haque

  • Urgent statutory audits to avoid prosecution by Companies House

    Summary about an urgent statutory audit

    Several companies have reached out to us because they were very late in filing their accounts and Companies House threatened to prosecute the directors unless the accounts were filed within 28 days. This is especially worrying for companies who need to file audited accounts, as an audit cannot be done overnight and takes time. However, we had capacity and we were able to complete the urgent statutory audit in time and the directors successfully avoided prosecution.

    Have you received a letter from Companies House threatening prosecution for late accounts?

    In recent years, a noticeable shift in posture from Companies House has signaled a departure from what many directors previously perceived as a relatively permissive enforcement regime. While the automatic imposition of late filing penalties under the Companies (Late Filing Penalties) Regulations 2008 remains the primary administrative deterrent, there is an increasing trend toward the deployment of more severe enforcement mechanisms. Specifically, many non-compliant entities are now receiving formal warnings regarding the potential for criminal prosecution of directors under the Companies Act 2006.

    For directors of companies that have fallen significantly behind their filing obligations, these notices are not merely administrative formalities. They represent a significant escalation in risk, one where the consequences extend beyond financial levies and into the realm of criminal records and professional disqualification.

    The Statutory Framework: Section 441 and Section 451

    The duty to file annual accounts is a strict liability obligation. Under Section 441 of the Companies Act 2006, the directors of a company must deliver a copy of the company’s annual accounts and reports to the Registrar for each financial year.

    Failure to comply with this obligation constitutes a criminal offence under Section 451. The statute dictates that if the requirements of Section 441 are not complied with before the end of the relevant filing period, every person who immediately before the end of that period was a director of the company commits an offence. It is critical to note that the law places the onus on the individual director; it is not a corporate liability alone. Upon conviction, a director may face an unlimited fine in England and Wales, and perhaps more importantly, the resulting criminal record can have devastating implications for their ability to hold future office or satisfy ‘fit and proper’ person tests in regulated sectors.

    From Penalties to Prosecution: The Current Climate

    Historically, the Registrar has largely been content to collect civil penalties, which double if accounts are filed late in two successive financial years. However, as highlighted by recent industry insights and the broader Economic Crime and Corporate Transparency Act 2023, there is a clear mandate to improve the integrity of the UK register.

    The receipt of a “28-day warning letter” from Companies House is a precursor to legal proceedings. While it is true that the Registrar has historically been selective in the cases it chooses to prosecute, the current climate suggests a reduced appetite for persistent non-compliance. For companies requiring a statutory audit, the timeline is particularly precarious. An audit often introduces complexities that cannot be resolved within a 28-day window if the accounting records are not in a state of readiness.

    The Audit Imperative and Reputational Risk

    For many directors, the primary concern is no longer the quantum of the late filing penalty, but the existential threat to their professional reputation. In the modern commercial environment, transparency is a currency. Lenders, credit rating agencies, and trade suppliers utilize automated monitoring of Companies House filings; a “notice of overdue accounts” or the commencement of strike-off action can lead to an immediate withdrawal of credit facilities or a downgrade in risk rating.

    Where a company is late due to the requirement for a statutory audit, the pressure on both the directors and the auditors is immense. An audit is a rigorous exercise in evidence gathering and professional skepticism; it cannot be bypassed or “fast-tracked” in a manner that compromises the requirements of International Standards on Auditing (UK). Consequently, when the threat of prosecution arises, directors find themselves in a pincer movement between the Registrar’s deadline and the auditor’s necessity for a true and fair view.

    Mitigation and Professional Responsibility

    If a company finds itself in receipt of a notice threatening prosecution, directors must act with immediate effect. Silence is often interpreted by the Registrar as a lack of intent to comply. While the 28-day period is stringent, demonstrating that an auditor has been formally engaged and that the audit process is underway can, in some instances, provide a basis for dialogue with Companies House, though it provides no statutory guarantee of immunity from prosecution.

    Directors must also be mindful of their general duties under Section 172 of the Companies Act 2006, which requires them to act in a way that promotes the success of the company for the benefit of its members. Allowing a company to drift into a position where its officers face criminal charges is a fundamental failure of governance that could, in extreme cases, lead to claims of breach of duty.

    How we can help

    We have built in extra capacity so that we can deal with an urgent statutory audit. As we regularly work with clients who have urgent short and tight deadlines anyway such as AIM listed plcs and FCA authorised firms, we have a lot of experience of managing audits to complete them in time.

    First we would need to discuss the general background of your business and how available and well organised your records are and we can estimate how long it would take us to complete the audit. If we can meet the 28 day deadline we’ll be happy to mention this in our engagement letter and get started (once we complete the usual onboarding procedures). However, we’d need to pay our staff overtime so there’d be an additional fee for this.

    We would also need management to be very responsive and provide us with the information that we need as soon as possible.

    Please contact us if you need a quote.

  • Exploring AQSE

    We act as auditors to small cap plcs listed on AQSE, AIM and Euronext and also as reporting accountants on IPOs. In this post we explore the Aquis Stock Exchange (“AQSE”) in more detail.

    What is AQSE?

    AQSE is a fast growing stock exchange which targets growth companies which are small to medium in size. Its a Registered Investment Exchange in the UK and is regulated by the FCA. Companies listed on AQSE are eligible investments for the full range of unlisted company tax reliefs, including EIS, capital gains, stamp duty and inheritance tax.

    Market overview

    As at February 2023 there were 105 companies listed on AQSE with an average market cap of £16m.

    1 or 2 new companies tend to list every month and they typically raise £1m-£3m upon listing. There were 22 new issues in 2022, raising a total of £31m.

    Existing companies often need to raise further money, for example to help with expansion, finance acquisitions or to fund working capital and there were £32m further issues in 2022. In Feb’23 Invinity Energy Systems Plc raised £21.5m in a very successful share issue.

    Trading activity

    The chart below shows that there are typically 2,000 to 3,000 trades per month with a total value ranging from £10m to £20m. However, we note that AQSE is generally seen as less liquid than larger stock markets.

    Why list on AQSE?

    Simply put, its far cheaper and faster to list on AQSE compared to AIM or LSE.

    After the FCA’s rule changes its also become much more difficult for companies to raise money on LSE as there is a minimum market cap of £30m.

    Whereas companies listing on AQSE only need a minimum market cap of £700,000.

    We also note that AQSE is gradually growing whereas AIM is in danger of declining. AIM used to have 3,600 companies listed at one time, but its less than 900 currently.

    Is it worth listing?

    Historically our tech startup clients have raised money from VCs and angels, ranging from £100k upto £70m. AQSE probably wouldn’t be the first option for a tech startup, but it may be worth exploring, especially if a company is starting to generate revenue but might not be able to achieve the typical hockey stick growth that VCs expect.

    Established companies from other sectors have tended to rely on bank loans, bonds or convertible loans, but they have generally needed significant assets or personal guarantees in order to raise finance. So if a company doesn’t have significant assets then AQSE would definitely be worth exploring.

    But if loan finance is available, the loan interest costs and related covenants are likely to be cheaper and less complex than listing on AQSE.

    The downsides of listing

    The listing process requires a lot of time and effort from management and all the advisory fees and listing expenses typically start from around £80k-£100k. Most of the listing costs would be deducted from the IPO but some of the initial costs would need to be prepaid before the IPO can get fully underway. Although founders may be able to seek pre-IPO fundraising from investors to help with the initial listing costs.

    Once listed, a company has to comply with strict AQSE rules and has to make regular announcements about its activities and certain events. There are also very tight deadlines for publishing interims and annual accounts.

  • Demergers

    What is a demerger?

    Demergers or spin outs involve a company being separated from the rest of the group/business so that it can receive investment, list on a stock market or be sold.

    This is a very wide and complex topic so we’ll mainly focus on the scenarios which we normally come across and this is a short summary only, there are many other factors and rules to consider.

    There are 3 main ways to effect a demerger: dividend in specie (a dividend not involving cash), reduction of capital or liquidation.

    Its possible to plan a demerger to take advantage of various tax reliefs and exemptions:

    Demerger relief exemptions apply: use dividend in specie so that the shareholders don’t pay any tax on the shares they receive in the demerged company

    Demerger reliefs not available or insufficient distributable reserves to pay a dividend: use reduction of capital so that the shareholders don’t pay any tax on the shares they receive in the demerged company

    Parent company can’t claim substantial shareholder exemption: use a group reconstruction first and then a reduction of capital

    Demerger relief

    A statutory demerger is one which meets the criteria under the Corporation Tax Act 2010 sections 1073 to 1099 and so is classed as an “exempt distribution”.

    The key benefits of qualifying are that the shareholders don’t have to pay tax on the shares they receive in the demerged company. They will receive the shares as a dividend in specie, so this doesn’t require a reduction of share capital, but it requires sufficient distributable reserves/profits being available.

    In order for a demerger to qualify, the main criteria are:

    • The demerged company must be at least a 75 per cent subsidiary.
    • Condition A: The companies must all be EU Member State resident.
    • Condition B: The companies must trading companies or members of a trading group (the company being demerged has to be trading or be a parent of a trading group).
    • Condition C: The distribution must be for the benefit of the trade.
    • Condition D: The distribution must not be made for the purposes of:
      • the avoidance of tax or stamp duty
      • the acquisition by persons who are not members of control of the company;
      • the cessation of a trade or its sale;
    • Condition E: the shares must not be redeemable and must be the whole of the share capital and voting rights of the demerged company

    Capital reduction

    Refer to Reduction of capital for an explanation of what is involved in a capital reduction.

    There will be no tax for the shareholders receiving the shares in the demerged company if TCGA92/S136 reconstruction relief is available.

    What value should be used for the shares in the demerged company?

    Book value can potentially be used for an exempt demerger by dividend in specie. However, there could be income tax payable by the shareholders if book value is used in a capital reduction as the shareholders would be receiving shares worth more than the reduction in capital.

    Advance clearance

    Its essential to obtain clearance from HMRC prior to commencing the transaction or demerger to ensure that they agree with the exempt treatment. It can take quite a while to obtain the clearance, you should normally allow for at least 1 to 2 months.

    Other areas to consider

    There are many other factors and rules that should be considered before a demerger is executed. Here are some examples:

    SDLT: there could be stamp duty payable on the transfer of shares, although it may be possible to claim tax exemptions

    VAT: if the demerged business is transferred as a going concern this will generally be outside the scope of VAT

    EIS: if there are any EIS shareholders in the demerged business it may be possible to use share for share exchanges/re-organisations to avoid EIS reliefs being withdrawn or clawed back.

    Intragroup: its worth checking if there will be any tax issues arising from splitting a company from the rest of the group. For example if there are intercompany loans these could be subject to a tax if written off after the demerger or there could be assets subject to degrouping charge under capital gains tax.

  • Reduction of capital

    Companies may need to reduce their capital, for example to:

    • repay excess cash to shareholders
    • create distributable reserves to be able to pay dividends
    • help with a demerger or spin out of a subsidiary

    In this article we consider the following key issues:

    1. legal process
    2. accounting treatment
    3. tax treatment

    (this article is a summary only, there’s alot of rules and regulations around this that would need to be carefully considered, as well as the specific circumstances affecting a company and the intentions behind the transaction)

    1) Legal process

    Under the Companies Act 2006 s.641 a private limited company can reduce its share capital without a court order or auditors statement, but it will need a special resolution supported by a solvency statement. A plc would usually need to get a court order and auditors statement.

    Special resolution

    The special resolution will require at least 75% of shareholders to agree to the capital reduction and they must be able to see the solvency statement at the general meeting, or if voting on a written resolution it should have been sent along with the proposed resolution (s.283 & 642).

    Solvency statement

    The solvency statement needs to be made by the directors of the company and it basically confirms that the company will be able to repay its current debts and also those falling due within the next 12 months.

    To be able to make it, the directors would need to carefully review all of the company’s existing liabilities as well as contingent and prospective liabilities.

    The solvency statement should not be taken lightly as its a criminal offence to issue it without having reasonable grounds. Directors should also consider if they have adequate insurance.

    The solvency statement has to be made a maximum of 15 days before the date on which the special resolution is to be passed (s.642). So for example, if the directors make the solvency statement on 1 January 2023, holding a shareholders meeting on 31 January 2023 would be too late.

    Filing at Companies House

    The special resolution, solvency statement and also a statement of capital (form SH19) have to be registered at Companies House within 15 days of the resolution passing (s.644).

    2) Accounting treatment

    The share capital can be reduced in any way and s.641 mentions:

    Share capital includes the nominal value of the shares issued, as well as share premium and capital redemption reserve. Revaluation and merger reserves are not usually included, but it may sometimes be possible to do other transactions/adjustments first to try and use these.

    If share capital is directly reduced rather than share premium or capital redemption reserve then the shares would need to be cancelled at Companies House.

    A key issue is that if excess capital is to be repaid using a reserve, then it can only repaid if there are sufficient distributable reserves. So if a company has accumulated losses then these need to be cleared first. But if the capital is reduced and there is a payment to shareholders at the same time, then accumulated losses don’t need ot be considered.

    Paying dividends

    If the purpose of the reduction of capital is to pay dividends in future then the share capital would be reduced and profit and loss reserves would be increased.

    For example, a company has £500k share capital and £200k accumulated deficits and so cannot pay and dividends. It could reduce share capital by £300k to result in £100k profit and loss reserves which are distributable as dividends. The accounting entry would be:

    Dr share capital £300k

    Cr P&L reserves £300k

    Surplus cash

    Using the same example as above, rather than paying £100k dividends in future, the shares could be cancelled and the £300k cash could be repaid immediately, without having to create a reserve and pay dividends:

    Dr share capital £300k

    Cr cash £300k

    Demerger/spin out

    For example, a subsidiary is being spun out to raise investment on its own and the existing shareholders of the parent will be the new shareholders of the subsidiary (ie removing the parent company) and the subsidiary has a book value of £500k. A share capital reduction could be accounted for:

    Dr share capital £500k

    Cr Investment in subsidiary £500k

    3) Tax treatment

    Generally, if dividends are paid via a reserve to shareholders then they would be taxed as income. Generally, if share capital is directly repaid without a P&L reserve being created then its taxed as capital. If the amount repaid is the same as the original cost for the shareholders, then there is no capital gains tax.

    The tax treatment can get REALLY complicated! So we’ve only put a short summary here which is very generalised as there are many possible scenarios.

    See CTM15440 and CG57810 in HMRC’s manuals as a starting point.

    Example

    For example, as described in the accounting treatment section above, share capital is reduced and there is an immediate payment to the shareholders without a reserve being created.

    The reduction does not form part of the company’s realised profits and so isn’t a distribution that has been subject to corporation tax.

    The payment will normally be treated by HMRC as a repayment of share capital under TCGA92/S122 (unless its part of a demerger in which it case it may fall under TCGA92/S126 to S130 or S136)

  • The main requirements of a strategic report

    The main strategic report must contain the following sections as per the Companies Act 2006 s414C:


    (a) a fair review of the company’s business;

    (b) a description of the principal risks and uncertainties facing the company;

    (c) the review required is a balanced and comprehensive analysis, consistent with the size and complexity of the business, of:
    (i) the development and performance of the business of the company during the financial year; and
    (ii) the position of the company’s business at the end of that year;

    (d) the review must, to the extent necessary for an understanding of the development, performance or position of the company’s business, include:
    (i) analysis using financial key performance indicators; and
    (ii) where appropriate, analysis using other key performance indicators, including information relating to environmental matters and employee matters;

    (e) the report may also contain such of the matters otherwise required to be disclosed in the directors’ report as the directors consider are of strategic importance to the company;
    (f) the report must, where appropriate, include references to, and additional explanations of, amounts included in the company’s annual accounts;

    S172 statement

    The strategic report of large companies must include a statement which describes how the directors have had regard to the considerations set out in s172 Companies Act 2006 when fulfilling their duty to promote the success of the company, these being;

    (a) the likely consequences of any decision in the long term;
    (b) the interests of the company’s employees;
    (c) the need to foster the company’s business relationships with suppliers, customers and others;
    (d) the impact of the company’s operations on the community and the environment;
    (e) the desirability of the company maintaining a reputation for high standards of business conduct; and
    (f) the need to act fairly as between members of the company.

    The FRC issued guidance that companies who are below the limits for a large company but are not eligible for small and medium company exemptions, such as FCA authorised investment firms involved in MiFID securities, have to include a s172 statement.

    Companies are large if they meet at least 2 of the following critieria:

    • Turnover of more than £36m
    • Balance sheet total of more than £18m
    • More than 250 employees

  • How to audit going concern under ISA 570

    To audit going concern under ISA 570, the auditor should follow the principles and procedures of auditing going concern, which are the principles and procedures that govern the assessment of an entity’s ability to continue as a going concern.

    The key steps in auditing going concern under ISA 570 are as follows:

    1. Understand the entity and its environment: The first step in auditing going concern under ISA 570 is to understand the entity and its environment. The auditor should obtain an understanding of the entity’s business, its industry, and its economic environment. The auditor should also obtain an understanding of the entity’s financial position, its liquidity, and its capital structure.
    2. Identify and assess the risks of going concern: The second step in auditing going concern under ISA 570 is to identify and assess the risks of going concern. The auditor should identify the risks that may impact the entity’s ability to continue as a going concern, such as financial difficulties, operational challenges, and regulatory changes. The auditor should assess the likelihood and the impact of the risks on the entity’s ability to continue as a going concern.
    3. Obtain management’s assessment of going concern: The third step in auditing going concern under ISA 570 is to obtain management’s assessment of going concern. Management is responsible for preparing the financial statements and assessing the entity’s ability to continue as a going concern. The auditor should obtain management’s assessment of going concern, including the assumptions, judgments, and estimates used in the assessment.
    4. Evaluate the adequacy of management’s assessment of going concern: The fourth step in auditing going concern under ISA 570 is to evaluate the adequacy of management’s assessment of going concern. The auditor should evaluate whether management’s assessment is reasonable and appropriate in the circumstances. The auditor should consider whether the assumptions, judgments, and estimates used in the assessment are reasonable and supported by the facts and circumstances.
    5. Conclude on the going concern assumption: The fifth step in auditing going concern under ISA 570 is to conclude on the going concern assumption. Based on the auditor’s assessment of the risks of going concern and the adequacy of management’s assessment, the auditor should conclude on the appropriateness of the going concern assumption. If the auditor has concerns about the entity’s ability to continue as a going concern, the auditor should evaluate the implications for the financial statements and the audit.

  • Provisions & contingent liabilities and assets

    IAS 37 and FRS 102 s21 apply to provisions, contingent liabilities, and contingent assets. They establishe the principles and rules for the recognition, measurement, and disclosure of provisions, contingent liabilities, and contingent assets in the financial statements.

    Provisions

    Provisions are liabilities that are recognized in the financial statements when it is probable that an outflow of economic resources will be required to settle the liability, and the amount of the liability can be estimated with sufficient reliability. Examples of provisions include warranty claims, restructuring costs, and legal claims.

    An entity shall recognise a provision only when:
    (a) the entity has an obligation at the reporting date as a result of a past event;
    (b) it is probable (ie more likely than not) that the entity will be required to transfer economic benefits in settlement; and
    (c) the amount of the obligation can be estimated reliably.

    The recognized provision is recorded as a liability in the balance sheet, and the expense is recognized in the income statement.

    Contingent liabilities

    Contingent liabilities are potential liabilities that are not recognized in the financial statements unless it is probable that an outflow of economic resources will be required to settle the liability, and the amount of the liability can be estimated with sufficient reliability. Examples of contingent liabilities include legal claims, environmental liabilities, and guarantees.

    Contingent liabilities are not recognized in the financial statements unless it is probable that an outflow of economic resources will be required to settle the liability, and the amount of the liability can be estimated with sufficient reliability (ie its a provision). If the contingency is not probable or the amount cannot be estimated with sufficient reliability, the contingent liability is disclosed in the notes to the financial statements.

    Contingent assets

    Contingent assets are potential assets that are not recognized in the financial statements unless it is probable that an inflow of economic resources will be received, and the amount of the asset can be estimated with sufficient reliability. Examples of contingent assets include litigation recoveries, insurance claims, and tax refunds.

    Contingent assets are not recognized in the financial statements as assets can only be reocgnised if the flow of future economic benefits is virtually certain.

    Disclosure of a contingent asset is required when an inflow of economic benefits is probable.

    Disclosures

    The standards also require disclosures in the financial statements to provide information about the nature, timing, and amount of the provisions, contingent liabilities, and contingent assets. The entity should disclose the carrying amount of the provisions, the changes in the carrying amount of the provisions, and any significant assumptions used in estimating the provisions. The entity should also disclose the nature, timing, and amount of the contingent liabilities and contingent assets, and any changes in the likelihood or the amount of the contingent liabilities and contingent assets.

    If there is an ongoing court case the full disclosure about contingent liabilities may be seriously prejudicial, so it may be possible to make limited disclosures.

  • Related parties

    Related parties are entities or persons that are related to the entity preparing the financial statements. Related parties may include the entity’s parent, subsidiaries, associates, joint ventures, and directors, key management personnel, and their immediate families.

    Related parties may also include entities or persons that have the ability to exercise significant influence over the entity, such as major shareholders, close members of the entity’s governing body, or other entities or persons that have a close relationship with the entity.

    The definition of related parties and the identification of related parties are important in the preparation of the financial statements, as transactions with related parties may be subject to special disclosure requirements and may require special accounting treatment to ensure that they are presented in a consistent and transparent manner.

    You should refer to the accounting standards for the precise definitions.

  • How to account for leases under IFRS 16

    To account for leases under IFRS 16, the entity should follow the principles and rules of accounting for leases, which are the principles and rules that govern the recognition, measurement, and disclosure of leases in the financial statements.

    IFRS 16 is the International Financial Reporting Standard that applies to leases. IFRS 16 replaces the previous leases standard, IAS 17, and introduces a single, on-balance sheet model for lessees. Under IFRS 16, lessees are required to recognize a right-of-use asset and a lease liability for all leases, except for short-term and low-value leases.

    The key steps in accounting for leases under IFRS 16 are as follows:

    1. Identify the lease: The first step in accounting for leases under IFRS 16 is to identify the lease. A lease is a contract that conveys the right to use an asset for a specified period of time in exchange for consideration. A lease is classified as a finance lease or an operating lease based on the nature of the underlying asset and the extent to which the risks and rewards of ownership of the asset are transferred to the lessee.
    2. Measure the right-of-use asset and the lease liability: The second step in accounting for leases under IFRS 16 is to measure the right-of-use asset and the lease liability. The right-of-use asset is measured at the present value of the lease payments, discounted at the lessee’s incremental borrowing rate. The lease liability is measured at the present value of the lease payments, discounted at the lessee’s incremental borrowing rate, plus any lease incentives received by the lessee.
    3. Recognize the right-of-use asset and the lease liability in the balance sheet: The third step in accounting for leases under IFRS 16 is to recognize the right-of-use asset and the lease liability in the balance sheet. The right-of-use asset is recognized as a non-current asset, and the lease liability is recognized as a non-current liability. The right-of-use asset and the lease liability are recognized at the commencement date of the lease.

    The right of use asset has to be depreciated over the lease term. At each year end the value of the remaining asset should be compared to the lease liability to assess for any impairment.

    The business may have coded rental/lease payments to the rent nominal in the p&l. This needs to be reclassified to reducing the lease liability. Instead the p&l will show the lease interest payable for the year.

    The lease term is generally used for the calculations, unless there is a break clause at the option of the lessee etc.

    There is an exemption available for short leases such as 1 year lease/tenancy agreements.

  • How to account for an associate

    To account for an associate, the entity should follow the principles and rules of accounting for associates, which are the principles and rules that govern the recognition, measurement, and disclosure of associates in the financial statements.

    The key steps in accounting for an associate are as follows:

    1. Identify the associate: The first step in accounting for an associate is to identify the associate. An associate is an entity over which the entity has significant influence, but not control. Significant influence is the power to participate in the financial and operating policies of the associate, but not the power to control those policies.
    2. Measure the investment in the associate: The second step in accounting for an associate is to measure the investment in the associate. The investment in the associate is measured at the cost of acquisition, adjusted for post-acquisition changes in the entity’s share of the associate’s net assets. The cost of acquisition includes the fair value of any assets or liabilities assumed by the entity in the acquisition of the associate.
    3. Recognize the entity’s share of the associate’s net income and net assets: The third step in accounting for an associate is to recognize the entity’s share of the associate’s net income and net assets. The entity’s share of the associate’s net income is recognized in the income statement, and the entity’s share of the associate’s net assets is recognized in the balance sheet.
    4. Disclose the investment in the associate and the entity’s share of the associate’s financial performance: The fourth step in accounting for an associate is to disclose the investment in the associate and the entity’s share of the associate’s financial performance. The entity should disclose the carrying amount of the investment in the associate, the nature of the investment, and the entity’s share of the associate’s profit or loss and other comprehensive income.

    Overall, the key steps in accounting for an associate are to identify the associate, measure the investment in the associate, recognize the entity’s share of the associate’s net income and net assets, and disclose the investment in the associate and the entity’s share of the associate’s financial performance.