New accounting standards for small and micro-entities
The Financial Reporting Council (FRC) has issued a suite of changes that update and, in many cases simplify, UK and Ireland accounting standards.
Key amongst the changes are new requirements for micro-entities and small entities, and the withdrawal of the Financial Reporting Standard for Smaller Entities (FRSSE).
The changes are largely in response to the implementation of the new EU Accounting Directive, and include:
- A new standard, FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime.
- New Section 1A Small Entities of FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland.
- Other changes necessary for continued compliance with company law.
The new standards are effective for accounting periods beginning on or after 1 January 2016, with early adoption permitted for accounting periods beginning on or after 1 January 2015.
The key features of the new accounting framework are:
FRS 105 will apply to those companies qualifying as a micro-entity under the Companies Act (turnover up to £632,000, balance sheet total up to £316,000, employees 10), and choosing to apply the micro-entity accounting regime. FRS 105 is based on the very simplified accounts requirements for such entities – including measurement of all assets and liabilities at cost (no fair values or revaluation), simplified accounts formats, and minimal disclosure notes.
Withdrawal of FRSSE
With the withdrawal of the FRSSE, small entities will be required to apply FRS 102 which now includes a new section 1A, which contains the specific presentation and disclosure requirements required by the Companies Act. Whilst the law only mandates a limited number of disclosures, small entities are still required to prepare true and fair accounts, therefore the directors will need to consider what (if any) additional information must be disclosed. For recognition and measurement, small entities will now follow the requirements of FRS 102.
Small company thresholds
The small company thresholds (for accounting purposes) are increasing: to turnover of £10.2 million, balance sheet total £5.1 million, employee total remains 50. This will enable a total of 11,000 currently medium-sized companies to take advantage of the small entity accounting provisions. Such companies are permitted to early adopt the new standard to avoid applying FRS 102 for one year before moving to Section 1A of FRS 102.
Melanie McLaren, FRC Executive Director of Codes and Standards, said: "These new accounting standards support the implementation of the micro-entities regime, further simplifying accounting requirements for up to 1.5 million of the UK's smallest entities.
"They also respond to the new legal framework for disclosure in small company reporting, providing guidance for applying it and improving transparency relating to financial instruments, and they further improve the cost-effective reduced disclosure framework for listed groups by permitting IFRS-based presentation requirements in subsidiaries' financial statements."
The new and amended standards, along with an overview document, setting out the main features of the new UK financial reporting framework, are available from the FRC website.