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HMRC internal manual

Corporate Finance Manual

Old rules: loan relationships: authorised accounting methods: which authorised method?

Introduction: which authorised method?

This guidance applies to periods of account beginning before 1 January 2005

Even if the accounts use mark to market, the authorised accruals basis is mandatory for

  • convertible and asset-linked debt, unless it is held on trading account (see CFM82010+)
  • loan relationships where the parties are connected.

The authorised mark to market basis is mandatory for

  • certain holdings in authorised unit trusts and open ended investment companies (OEICs)
  • certain cases where the accounts are drawn up under the laws of a company’s home state.

Otherwise the company will use the method that is most appropriate for the nature of the debt, following generally accepted accounting principles as it applies in that company’s case. For most companies, this will be the authorised accruals basis.

Different methods may be used for different loan relationships in the same company. For example, banks may use mark to market on their trading accounts, but accruals on their long- term customer loans.

Different methods may also be used for the same loan relationship for different periods, for example banks may transfer an asset from trading account to a lending book, and move the asset from mark to market to accruals.