Small companies accounting changes – when to adopt?

2015 saw the announcement of a raft of changes affecting small company accounting, from a new section of FRS 102 for small entities, to an increase in the company size thresholds.

With many of these measures available for early adoption, the key question for many small companies will be exactly when they should adopt the new accounting requirements.

Company law changes

Changes to the Companies Act 2006 were introduced by The Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015 in April 2015, and apply for accounting periods beginning on or after 1 January 2016 (i.e. one year after the mandatory adoption date of FRS 102).  The main changes are:

  • The increase in the small company thresholds to turnover £10.2 million, balance sheet £5.1million, employees remaining at 50.
  • A restriction on the number of notes that can be specified in accounting standards for small companies.
  • Removal of the option to file abbreviated accounts (although small companies can opt not to file their P&L account and directors’ report).

Accounting standards changes

FRSSE 2015 remains in force for entities meeting the existing small company criteria (i.e. £6.5 million turnover, £3.26 million balance sheet and 50 employees or less), for accounting periods beginning before 1 January 2016.  From that date, the FRSSE is withdrawn.

FRS 102 section 1A – small entities, is effective for accounting periods beginning on or after 1 January 2016, and will replace the FRSSE.  Small entities will follow FRS 102 for recognition and measurement, with the specific presentation and disclosure requirements contained in Section 1A.

Early adoption

Section 1A of FRS 102 can be adopted for accounting periods beginning on or after 1 January 2015, provided that the provisions of the above regulations are also adopted at that date. The FRSSE is incompatible with the requirements of the regulations, therefore an entity using the FRSSE for its 2015 accounts cannot early adopt the changes such as the increased thresholds.

 

Companies already qualifying as small and applying the FRSSE

Companies that do not qualify as small but would do so under the increased thresholds

Accounting periods beginning on or after 1 January 2015 but before 1 January 2016

May apply FRSSE (2015) and file abbreviated accounts or may early adopt FRS 102 including section 1A small entities (or full FRS 102), and the 2015 accounts regulations (abbreviated accounts may not be filed).

Must apply FRS 102, and may early adopt section 1A small entities and the 2015 accounts regulations.

Accounting periods beginning on or after 1 January 2016

Must apply FRS 102 with or without section 1A and 2015 accounts regulations.

Must apply FRS 102 with or without section 1A and 2015 accounts regulations.

The table includes the options most likely to be taken up by small companies.  There are alternatives e.g. where applicable small companies could adopt FRS 101 or FRS 102 with the reduced disclosure framework for qualifying entities. Additionally, in 2015 only, small companies qualifying as such under the existing thresholds could adopt full FRS 102 in conjunction with the existing small company regulations.

Micro-entities

The new standard for micro-entities, FRS 105, applies from 1 January 2016, with early adoption available from 1 January 2015.  Alternatively micro-entities can continue to apply the FRSSE (with micro-entity amendments), but only in 2015.

Audit threshold

Government announced earlier this year that the audit threshold will also increase for accounting periods beginning on or after 1 January 2016, to retain the alignment with the small company definition.  The increased audit threshold is not available for early adoption. This means that for 2015 accounts, a company can apply the new limits for financial reporting purposes, but will still need to use the old limites for assessing whether an audit is required.

Topics

  • Guidance
  • Corporate and financial reporting

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