REPORTING REQUIREMENTS

Neither the Companies Act nor any of the other acts mentioned in `Part 8, Choice of Business Entity' and `Part 9, Other Forms' contain more than minimal requirements concerning record keeping and financial statement preparation. However, banks, trust companies, insurance companies, unions, and credit unions must keep detailed accounting records because they are required to file annual financial statements with appropriate government ministries, and many other companies' own articles of association require that adequate books be kept. Moreover, the National Insurance Act 1972 provides that records of remuneration paid to employees must be maintained.

The Companies Act and the other relevant acts are also silent on the form and content of financial statements, but under common practice, financial statements consist of a balance sheet, a statement of profit and loss, a statement of changes in financial position, and explanatory notes. No standard reporting format is specified, nor are valuation bases or methods prescribed. A company's first financial statements are normally prepared at a date not more than twelve months after its incorporation.

The Bahamas Institute of Chartered Accountants recommends that companies adopt international accounting standards when preparing financial statements, and, in general, this recommendation is followed.

Some subsidiaries of multinational companies, however, adopt the standards promulgated by the accounting bodies of their parents' home countries. The historical cost convention is followed, although upward asset revaluations are permitted, as described in `Part 10, Financial Statement Requirements, Accounting Practices'.

ACCOUNTING PRINCIPLES AND STANDARDS

Financial statements are prepared for the information of shareholders and are expected to give a "true and fair view" of the company's financial position and results. Since income is not taxed in the Bahamas, tax law requirements have played no part in developing accounting practices.

ACCOUNTING PRACTICES

The revaluation of assets is permitted but is not a general requirement. Upward revaluations are fairly common, resulting in a credit to an account (the appraisal increase credit).

DEPRECIATION

Depreciation rates are based on economic considerations and are generally applied by the straight-line method.

GOODWILL

Purchased goodwill may be recognized. It may be retained at cost indefinitely, amortized over its estimated life, or written off immediately. It is usually amortized as a normal operating expense in the profit and loss account over not more than forty years.

TREATMENT OF DIVIDENDS

Proposed dividends are normally shown in the profit and loss statement and included in current liabilities in the balance sheet.

MERGER ACCOUNTING

Mergers are normally accounted for as the purchase of one company by another. If it is not possible to identify one particular company as the purchaser or acquirer, both parties to the merger being of broadly equivalent size and standing, the pooling-of-interests method may be adopted.

LEASED ASSETS

Leased assets are generally dealt with in accordance with international accounting standards. In the case of finance leases, in which substantially all the risks and rewards of ownership are transferred to the lessee, the assets are capitalized and depreciated. Operating leases are accounted for by simply expensing the periodic rentals.

RESEARCH AND DEVELOPMENT EXPENDITURE

Bahamian companies rarely incur research and development expenditure, and so no specific accounting treatment has been identified. In general, however, such expenditure would be expensed as incurred. If future benefits appear to be reasonably certain, development costs may be capitalized and written off over an appropriate period.

CAPITALIZATION OF INTEREST

Interest on financing raised to meet construction costs may be capitalized during the construction period.

INVENTORY VALUATION

Inventories are generally recorded at cost, but if a reduction in net realizable value to below cost is likely to be permanent, that reduction is normally recognized.

The first-in, first-out; actual; average; and retail methods of arriving at cost are normally used. There are no requirements for the inclusion of specific overheads in manufacturing costs; in practice, direct production overhead is included in inventory costs, but administrative overhead is not. Selling costs are always excluded. Market value normally means realizable value, and comparisons between cost and market values are normally made to the total inventory rather than to individual inventory lines.

UNUSUAL ITEMS

Items derived from events or transactions outside an enterprise's ordinary activities, as well as prior-year items, are dealt with in accordance with international accounting standards or the accounting practices of the investor's home country.

CONSOLIDATION PRACTICES

Companies are fully consolidated into group accounts if they are 50% or more owned or, in most cases, if they are controlled. Companies 50% or less owned and not controlled are shown as investments in affiliates. Goodwill arising on consolidation is calculated once only, on the acquisition of the subsidiary concerned.

AUDIT REQUIREMENTS AND STANDARDS

International business companies do not have to appoint auditors. Companies incorporated under the Companies Act 1992 are required to have independent professional audits, which may be waived with the unanimous consent of the shareholders. Lending agencies usually request companies applying for credit to have audited financial statements available. Banks, trust companies, insurance companies, credit unions, labor unions, and government corporations must, by law, produce audited financial statements.

In theory, anyone approved by the relevant government ministry may act as an independent auditor, although, in practice, firms of professional accountants or individual professional accountants are appointed.

These accountants are required to be members of the Bahamas Institute of Chartered Accountants. There are no legal regulations governing the appointment or dismissal of an auditor, and, in practice, a change of auditor is made by the directors of the company concerned. Statutory auditors, required in some countries, are not appointed in the Bahamas.

A potential investor would normally look to an accounting firm and legal counsel when seeking advice on setting up a business. The major accounting firms in the Bahamas can provide their clients with management consulting, accounting, and administrative services, although they must maintain a professionally independent attitude toward their clients.

The Bahamas Institute of Chartered Accountants is the premier accounting body in the Bahamas. It is a member of the International Federation of Accountants and requires that its members comply with the auditing guidelines of that organization.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.