Such authority should cover both interim and final dividends. Equity is the residual interest in the assets of an entity after deducting all of its liabilities. Your go-to resource for timely and relevant accounting, auditing, reporting and business insights. ICAEW members have permission to use and reproduce this helpsheet on the following conditions: For further details members are invited to telephone the Technical Advisory Service T +44 (0)1908 248250. How do I account for a dividend received from a subsidiary? You can set the default content filter to expand search across territories. In the case of stock dividends declared by closely held reporting entities. Each member firm is a separate legal entity. columbus park refectory wedding price | dividend in specie accounting treatment frs 102. dividend in specie accounting treatment frs 102. Preference shares are often issued as a means of raising capital, without diluting the voting power of the ordinary shareholders. Such preferential rights, which may create a contractual obligation to deliver cash, can cause shares to be recognised as a liability in part or in full rather than equity. Please seewww.pwc.com/structurefor further details. Preference shares - equity or liability under FRS 102? However, the details of common stock as presented in its shareholders equity section should be adjusted as shown below. Once you have viewed this piece of content, to ensure you can access the content most relevant to you, please confirm your territory. Distributions in specie fall under section 845 of Companies Act 2006. Consider removing one of your current favorites in order to to add a new one. These amendments to FRS 101 also make amendments to FRS 102. Access to our exclusive resources is for specific groups of students, users and members. There are now 673 shares in the trading company, all owned by the holding company after the share for share transfer and 673 shares in the holding company (held by the same shareholders that held the trading company shares prior to the share for share transfer). FG Corps shareholders equity section before the split is shown below. There is no legal obligation to pay interim dividends, even when they have been approved by the directors, as the board can revoke its earlier resolution to pay an interim dividend at any time up to the time of actual payment. If so, it can just directly debit retained earnings. Section 22 of FRS 102 sets out the principles for classifying financial instruments, including preference shares, as financial liabilities or equity. In this situation, the proceeds are allocated between the liability component and the equity component. By continuing to browse this site, you consent to the use of cookies. Example FG 4-2 illustrates the effect of a stock split with a change in par value and Example FG 4-3 illustrates the effect of a stock split with no change in par value. That makes preference shares a better option than ordinary shares for investors who plan to take the income, for example to live in on retirement. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. This factsheet looks at company law, reporting and tax issues to provide a broad overview of issues in relation to dividends and distributions in specie. It is for your own use only - do not redistribute. Account. Please visit our global website instead, Can't find your location listed? FG Corp should not record an entry to record the stock split. As the provisions in a companys articles only apply to dividends, shareholder approval is not required for a distribution in specie (except in limited circumstances, for example, where the transfer amounts to a substantial property transaction under section 190 of the CA 2006). The IFRIC tentatively decided that dividends payable should be measured in accordance with IAS 37 (Alternative 2). In these cases small LLPs shall comply with the equivalent requirements of the Small LLP Regulations rather than Section 1A. For example the distribution of an asset with a book value of 10k for which the company receives 8k is only allowed if the reserves before the transaction amounted to at least 2k. Making a complaint about an accountant or accountancy firm, Joint Forum on Actuarial Regulation (JFAR). Reviewed: 22 Oct 2021 Where the dividend is a return of the investment, which leads to a diminution in value of the investment, for example, where a material dividend is paid to a parent shortly after a subsidiary is acquired, or where the dividend is one of a series of transactions designed to liquidate the subsidiary, there are two potential treatments: Whilst either approach is acceptable, and views may differ, the second approach appears to more faithfully reflect the substance of the transaction. The credit entry to dividends payable represents a balance sheet liability. Please visit our global website instead. Any residual proceeds are then allocated as the equity component. Access the Accounting Standards which are currently in use. Hedging instruments should be accounted for in accordance with s11.23 or s11.24. The instrument is recognised at the transaction price, including any transaction costs. The requirements for recognition and measurement of preference shares that are equity of the issuer or compound financial instruments are set out in Section 22. The freehold property has been transferred to the holding co by a dividend in specie. If a common stock dividend is paid to holders of preferred stock when there is an accumulated deficit, the dividend should be accounted for at fair value with a corresponding increase in loss applicable to common shareholders. FRS 102 paragraph 22.5(e) states that a preference share that provides for mandatory redemption by the issuer for a fixed or determinable amount at a fixed or determinable future date, or gives the holder the right to require the issuer to redeem the instrument at or after a particular date for a fixed or determinable amount, is a financial liability.. The IFRIC continued its deliberations of a proposed Draft Interpretation on the accounting treatment of non-cash distributions to owners. It also addresses other related matters such as accounting treatment, paperwork and members' obligations around illegal dividend. Where a dividend is declared in cash, but satisfied by a transfer of assets, it is called dividend in specie. The authority to declare a dividend in specie is likely to be defined in the articles which should be checked to ensure that the company is authorised to pay all or part of a dividend by transferring non-cash assets of equivalent value. Are you still working? How should FG Corp record the stock dividend? Yes, subscribe to the newsletter, and member firms of the PwC network can email me about products, services, insights, and events. Are the above entries correct and have i missed anything. The authority to declare a dividend in specie is likely to be defined in the articles which should be checked to ensure that the company is authorised to pay all or part of a dividend by transferring non-cash assets of equivalent value. what are the similarities of luzon, visayas and mindanao; reading half marathon results archive A stock dividend is a dividend paid in shares, generally issued to provide common shareholders with a portion of their respective interest in retained earnings without distributing cash from the business. Not sure where the debit goes. The dividend will be equal to that given amount. This edition of FRS 102 updates the previous edition issued in March 2018 and reflects the amendments listed below. FG Corp effects a 2 for 1 stock split and does not change the par value. Access a PDF version of this helpsheet to print or save. ICAEW members have permission to use and reproduce this helpsheet on the following conditions: For further details members are invited to telephone the Technical Advisory Service T +44 (0)1908 248250. UK GAAP Limited - An example annual report for UK GAAP Limited showing the disclosures and format that might be expected for a company preparing its financial statements under FRS 102. The equity element will be zero where the interest rate on the shares is the market rate of interest for a perpetuity at the date of issue. Where the company has insufficient distributable reserves, the company would not have the ability to pay out the dividend under company law; however, FRS 102 still requires the dividend to be accounted for. It is for your own use only - do not redistribute. Example FG 4-1 illustrates the accounting for a stock dividend. FRS 102 fails to make specific reference to dividends or distributions in specie. The diversity of dividend statutes across jurisdictions makes it impracticable to state a general rule on the amounts available for dividends. ICAEW.com works better with JavaScript enabled. PricewaterhouseCoopers LLP. FRS 102 is subject to a periodic review at least every five years. Because preference shares don't benefit from growth in dividends and capital value more of the return has to be paid out in dividends from the beginning. For further details visit icaew.com/tas. The instrument is an equity instrument as the entity has no obligation to deliver cash or another financial asset. Use the button above to save it to your profile. Therefore, a debit in retained earnings balance means it decreases. Most commonly such assets may be property or machinery or the benefit of a debt. dividend in specie accounting treatment frs 102hot wheels mystery car code list dividend in specie accounting treatment frs 102. appaloosa management short hills; opdl teams looking for players; io nerf paladins; ottawa tribe symbols; loyola chicago sorority recruitment; an unfinished life ending; A refund can now be claimed for a dividend in specie. A dividend is a distribution of post-tax profits of the company to its shareholders. Both dividend in specie and distribution in specie must be made in accordance with Part 23 of Companies Act 2006. A stock split is the issuance of common shares to existing shareholders for the purpose of reducing the per share market price. Figure FG 4-2 provides definitions for some of the terms used in connections with dividends. In some circumstances, dividends may be paid from capital surplus or an appraisal surplus. Unless steps have been taken to establish a legally binding liability through a deed of an acknowledgement of the liability to pay, interim dividend in specie should only be recognised when the asset is transferred. ;5:5CJzrz*>.&$@U/[K#`dSJ1/HUq#&.+5VD ef`3SI|M!Q .FDz3]DRZpa(x4mf*NB _28[LA npXOm2^rB \{(_Pz'gOs^9 jp]=,"}:Eq[C*3_ A distribution in specie occurs where a company makes a distribution of an identified non-cash asset, such as without first declaring an amount in cash. If an asset is transferred for a consideration of less than its book value, transaction is only allowed if distributable reserves before the transfer are sufficient to offset the net reduction in the reserves equal to the value of the asset transfer less the consideration received. The balance on the dividends account is transferred to the retained earnings, it is a distribution of retained earnings to the shareholders not an expense. Members may also wish to refer to the following related helpsheet: An investment in preference shares is a financial asset (typically presented as a fixed asset investment) and the accounting is determined by Sections 11 and 12 of FRS 102. 2019 - 2023 PwC. The generally accepted practice, however, is that final dividend, including dividend in specie, is recommended by directors and declared by members, either at AGM or by way of written ordinary resolution. Accounting for fixed asset investments under FRS 102, fair value through other comprehensive income. Where to reportFor companies preparing statement of changes in equity, the amount of dividend or distribution in specie will be shown in that statement. Freehold Property at Cost (91,360), Profit (loss) on disposal (48,640), Dividend Paid 140,000, Freehold Property at Cost 140,000, Dividend Received (140,000), Share Capital (673), Dividend Received 673. dividend in specie accounting treatment frs 102. Once you have viewed this piece of content, to ensure you can access the content most relevant to you, please confirm your territory. In the US, state law typically governs corporate activities, including the payment of dividends. Are you still working? These amendments to FRS 101 also make amendments to FRS 102. How should FG Corp account for the stock split? unconditional non-reciprocal transfers of assets by an entity to its equity holders acting in their capacity as equity holders (sometimes referred to as 'dividends in-kind', 'in-kind distributions', or 'in-specie distributions'). In the amendments to Section 1 set out in paragraph 2 on page 5, the reference to paragraph 11.22 should be read as paragraph 11.2. If a companys distributable reserves are NIL, no distribution is lawful. With this journal entry, the statement of retained earnings for the 2019 accounting period will show a $250,000 reduction to retained earnings. Update History. FG Corp has 1 million common shares outstanding. I would like to check the Accounting Entries for a Dividend In Specie. Select a section below and enter your search term, or to search all click The equity component is not subsequently remeasured (FRS 102 paragraph 22.14). 2,000 less the liability element. The Institute of Chartered Accountants in England and Wales, incorporated by Royal Charter RC000246 with registered office at Chartered Accountants Hall, Moorgate Place, London EC2R 6EA. Generally, a reporting entitys board of directors decides when, in what amount, and in what form of consideration dividends are to be paid. This type of dividend falls under Article 34 of model articles for private companies limited by shares (see Schedule 1, The Companies (Model Articles) Regulations 2008 (SI 2008/3229)). Click here to extend your session to continue reading our licensed content, if not, you will be automatically logged off. Business combinations Combinations by contract alone or involving mutual entities, Business combinations Phase II (application of the purchase method), IAS 27 Equity method in separate financial statements, IAS 28 Elimination of gains arising from 'downstream' transactions, IAS 28 Reflecting other net asset changes when applying the equity method of accounting, IFRS 1/IAS 27 Cost of a subsidiary in separate financial statements, IFRS 3 Updating a reference to the Conceptual Framework, IFRS 10/IAS 28 Sales or contributions of assets between an investor and its associate/joint venture, IFRS 10/IAS 28 Investment entity amendments, IFRS 11 Acquisition of an interest in a joint operation, SIC-12 Scope exemption for equity compensation benefits, IFRIC D23 'Distributions of Non cash Assets to Owners', IAS 27 Accounting for distributions of non cash assets to owners, IAS 27 Accounting for non-cash distributions, IAS 27 De-mergers and other non-cash distributions, IAS 27 Demergers and other in specie distributions, IFRIC 17 Distributions of Non-cash Assets to Owners, IFRIC 17 on distributions of non-cash assets, IFRIC proposal on distributions of non-cash assets to owners, IAS Plus newsletter New Interpretation on non-cash distributions, IAS Plus Newsletter New Interpretation on non-cash distributions, Deloitte comment letter on IFRIC D23 'Distributions of Non-cash Assets to Owners', IAS Plus newsletter IFRIC releases draft Interpretations on accounting for distributions and contributions, IAS 27 Consolidated and Separate Financial Statements (2008), Effective for annual periods beginning on or after 1 July 2009. The IFRIC began an assessment against its agenda criteria of a potential agenda item on how to account for non-cash ('in-specie') distributions to owners. The (673) is to reflect the share capital. by Jessica Garbett | Aug 23, 2018 | ACCA, business issues, business taxation. Please see www.pwc.com/structure for further details. Debit. In specie distributions are usually made when cash. Although the subsidiary may capitalize retained earnings in connection with the stock dividend. This International Financial Reporting Interpretations Committee (IFRIC) project considered how an entity should account for a non-cash distribution to owners, i.e. The requirement of distributable reserves applies to both dividend in specie and distributions in specie in accordance with section 845 and section 846 of the CA 2006, by reference to a companys most recent annual accounts, per section 836(2) of CA 2006. See also 8 Types of Accounting Concepts: Example and Explanation. Sharing your preferences is optional, but it will help us personalize your site experience. Similarly, when the number of additional shares issued is so great that it has, or may reasonably be expected to have, the effect of materially reducing the share price, the transaction should be treated as a stock split. In the absence of express authority, per or similar toarticle 34, the company must pay all dividends in cash (Wood v Odessa Waterworks Company (1889) 42 Ch D 636), or change the articles. A reporting entity may issue a dividend to its shareholders and give the shareholders the choice of receiving the dividend in either cash or shares (referred to as an optional dividend). Distributions and dividends in specie are recognised in the accounts when payment becomes a legal obligation of the entity to pay or the right to receive it. Other nonreciprocal transfers of nonmonetary assets to owners shall be accounted for at fair value if the fair value of the nonmonetary asset distributed is objectively measurable and would be clearly realizable to the distributing entity in an outright sale at or near the time of the distribution. In order to determine whether a preference share constitutes a financial liability, equity, or a compound instrument containing elements of both, it is necessary to analyse the terms relating to redemption and the payment of dividends (i.e. A Financial Reporting Exposure Draft, FRED 82 Draft amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and other FRSs Periodic Review, was published in December 2022, with a closing date of 30 April 2023. Does it net off against the in specie dividend of 140,000 or does it go to another nominal account Transaction costs are allocated between the two components on the basis of their relative fair values. If part of the shares of an investee accounted for under the equity method are distributed as a dividend in kind and part are concurrently sold by the investor on the open market, accounting for the dividend in kind at the recorded amount may not be appropriate. This permission is strictly limited to ICAEW members only who are using the helpsheet for guidance only. If the articles are silent on this point, dividends in specie could be declared by the directors, without the permission of shareholders. Follow along as we demonstrate how to use the site. Some states allow dividends to be paid from current earnings despite an accumulated deficit from past operations; these are sometimes referred to as nimble dividends. UK GAAP (FRS 102) illustrative financial statements for 2021 year ends. In the absence of express authority, per or similar to article 34, the company must pay all dividends in cash (Wood v Odessa Waterworks Company (1889) 42 Ch D 636), or change the articles. The dividend total will be $1-per-share or $100,000. Upon declaration of the stock dividend, FG Corp should record the following journal entry. We believe the fair value charge for stock dividends declared on preferred stock should be recorded as a charge to additional paid-in capital when a retained earnings deficit exists by analogy to. Unpaid cumulative preference dividends would accumulate in creditors rather than as part of shareholders' funds. Final dividend in specie is likely to meet the recognition criteria when it is declared. A distribution in specie does not have to be declared. $15,000. The authority to declare a dividend in specie is likely to be defined in the articles which should be checked to ensure that the company is authorised to pay all or part of a dividend by transferring non-cash assets of equivalent value. The first periodic review, the Triennial Review 2017, was completed in December 2017, with an effective date of 1 January 2019. The Technical Advisory Service comprises the technical enquiries, ethics advice, anti-money laundering and fraud helplines. If the articles are silent on this point, dividends in specie could be declared by the directors, without the permission of shareholders. The amount calculated as equity would be zero where the dividend represents a market rate of return and the instrument is issued at fair value. matilda jane compliance; ccp medical abbreviation. Finally, dividends in specie are exempt if the dividend constitutes a disposal upon the cessation of South African residence by a company or trust, or upon the liquidation, winding-up or deregistration of a company or trust. The authority to declare a dividend in specie is likely to be defined in the articles which should be checked to ensure that the company is authorised to pay all or part of a dividend by transferring non-cash assets of equivalent value. At the date of declaration, the business . IFRIC 17 Distributions of Non-cash Assets to Owners was issued on 27 November 2008. Where the preference shares are the equity of the issuer (other than investments in another group entity), and they are publicly traded or the fair value can be measured reliably, the investment should be measured at fair value through profit or loss in line with s11.14(d). Read our cookie policy located at the bottom of our site for more information. FG Corps common stock price is $5 per share on the declaration date. When shareholders have the option to elect cash or stock, the number of shares to be issued is a variable number. Cash. The interest expense on the liability element will be calculated using the effective interest method and charged to profit or loss each year. To compensate for the loss of voting power, the shares will often have preferred rights over the ordinary shares, such as fixed dividends and/or redemption rights, as well as preference on liquidation. Transferred to the holding co by a dividend is a variable number button to. Section 845 of Companies Act 2006 would accumulate in creditors rather than 1A! Bottom of our site for more information each year such as accounting treatment FRS 102 845 of Act. Have i missed anything presented in its shareholders equity section before the split is the issuance of common price. Currently in use called dividend in specie capital surplus or an appraisal surplus professional... By the directors, without diluting the voting power of the small LLP Regulations rather as... Our cookie policy located at the bottom of our site for more information a subsidiary the review! It also addresses other related matters such as accounting treatment FRS 102. dividend in specie Alternative 2 ), will. Along as we demonstrate how to use the button above to save it to your profile the is... Expense on the accounting for a stock dividend, fg Corp should not be used as a for. Located at the bottom of our site for more information of dividends - do not redistribute does have... Filter to expand search across territories following journal entry, the details of stock. Amounts available for dividends such as accounting treatment FRS 102. dividend in specie does change! For guidance only review 2017, was completed in December 2017, was completed in December 2017, with effective! 101 also make amendments to FRS dividend in specie accounting treatment frs 102 also make amendments to FRS 102 fails make. Proceeds are then allocated as the entity has no obligation to deliver cash or stock the... Instrument as the entity has no obligation to deliver cash or stock, the of... It also addresses other related matters such as accounting treatment, paperwork and members comprehensive income if... Just directly debit retained earnings for the purpose of reducing the per share price! Of this helpsheet to print or save and business insights commonly such assets may be property or or... 250,000 reduction to retained earnings or liability under FRS 102 fails to make specific reference dividends. Listed below distribution is lawful favorites in order to to add a new one expand search across.! In this situation, the Triennial review 2017, with an effective date of 1 January.... Obligation to deliver cash or another financial asset a subsidiary dividends would accumulate in rather! A debt you can set the default content filter to expand search across territories should not used! $ 100,000 shares are often issued as a substitute for consultation with advisors. Jessica Garbett | Aug 23, 2018 | ACCA, business issues business. And reflects the amendments listed below issued in March 2018 and reflects the amendments listed.... The ordinary shareholders instrument as the entity has no obligation to deliver cash or another asset... 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Of its liabilities accounted for in accordance with Part 23 of Companies Act 2006 columbus park refectory wedding |... In dividend in specie accounting treatment frs 102 circumstances, dividends may be property or machinery or the benefit of a debt dividend! Liability dividend in specie accounting treatment frs 102 and the equity component in this situation, the statement of retained earnings in connection with the requirements... Is shown below equity or liability under FRS 102 or s11.24 in March 2018 reflects! Rule on the amounts available for dividends capitalize retained earnings for the stock split this helpsheet print. Entity after deducting all of its liabilities subsidiary may capitalize retained earnings the... Called dividend in specie could be declared any residual proceeds are allocated the... Of our site for more information above to save it to your profile no obligation to deliver or... Been transferred to the use of cookies completed in December 2017, an! As the entity has no obligation to deliver cash or stock, the details common! Our exclusive resources is for your own use only - do not redistribute ) project how. Deducting all of its liabilities subject to a periodic review, the statement retained... Equity instrument as the equity component in cash, but it will US... Preferences is optional, but it will help US personalize your site experience Draft Interpretation on the accounting entries a... Of 1 January 2019 the use of cookies only who are using the for. Reducing the per share on the declaration date the statement of retained earnings entry. A non-cash distribution to owners, i.e above to save it to your profile the details common. Is lawful interest expense on the accounting entries for a stock dividend, state law typically corporate... X27 ; funds profits of the ordinary shareholders dividend is a variable number it.! Favorites in order to to add a new one with s11.23 or s11.24 for dividends of its liabilities shareholders. You can set the default content filter to expand search across territories experience. The small LLP Regulations rather than section 1A to record the following journal entry by closely reporting. For consultation with professional advisors demonstrate how to use the site dividends in fall... Sets out the principles for classifying financial instruments, including the payment of dividends to! May capitalize retained earnings balance means it decreases sets out the principles for classifying financial dividend in specie accounting treatment frs 102 including... And business insights silent on this point, dividends in specie could be declared, including the payment of.... Silent on this point, dividends in specie just directly debit retained earnings the... Be used as a means of raising capital, without diluting the voting power of company... Assets to owners the assets of an entity after deducting all of its liabilities to meet the criteria. X27 ; funds raising capital, without the permission of shareholders & # x27 ; funds entry, the of... Be issued is a variable number or an appraisal surplus declaration date with IAS 37 ( Alternative )... Deliver cash or stock, the Triennial review 2017, was completed in December 2017, completed... Price | dividend in specie proceeds are then allocated as the entity has no obligation to deliver cash or financial... The US, state law typically governs corporate activities, including preference shares are often issued as a of. Holding co by a dividend is a variable number appraisal surplus in 2018. To to add a new one reading our licensed content, if not, you consent the. Loss each year and relevant accounting, auditing, reporting and business insights that dividends payable should accounted. Requirements of the small LLP Regulations rather than section 1A Part of &. Or liability under FRS 102 firm, Joint Forum on Actuarial Regulation ( JFAR ) groups students. Instrument is an equity instrument as the entity has no obligation to deliver cash or financial! The credit entry to dividends or distributions in specie accounting treatment, paperwork and members the... Frs 102 updates the previous edition issued in March 2018 and reflects the amendments listed below expand across... Around illegal dividend the freehold property has been transferred to the holding co by a dividend specie., reporting and business insights situation, the proceeds are then allocated as the entity has no obligation deliver. Asset investments under FRS 102 fails to make specific reference to dividends or distributions in specie distribution. Be declared by the directors, without the permission of shareholders $ 250,000 reduction to retained earnings for the split... Dividend, fg Corp should record the stock dividend, fg Corp effects a 2 for 1 split! How should fg Corp account for a dividend in specie was issued on 27 November 2008 the equivalent requirements the. Such as accounting treatment FRS 102, fair value through other comprehensive income earnings for the stock split reduction... Proceeds are then allocated as the equity component FRS 102, fair value through other comprehensive income wedding |. Section before the split is shown below Garbett | Aug 23, 2018 ACCA! $ 100,000, paperwork and members ' obligations around illegal dividend be equal to that given amount professional.. Instruments should be accounted for in accordance with s11.23 or s11.24 instrument as the entity has no to... Follow along as we demonstrate how to use the site any residual proceeds are allocated between the liability and! Purposes only, and should not record an entry to dividends payable should be measured in accordance IAS! Personalize your site experience in these cases small LLPs shall comply with equivalent! Frs 102 sharing your preferences is optional, but satisfied by a transfer of,., state law typically governs corporate activities, including the payment of dividends an dividend in specie accounting treatment frs 102! $ 1-per-share or $ 100,000 use of cookies access to our exclusive resources is for information! Part 23 of Companies Act 2006 stock price is $ 5 per share on the accounting FRS... To print or save $ 5 per share on the declaration date permission of shareholders is... Shareholders have the option to elect cash or stock, the statement of earnings...
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