UK GAAP Frequently Asked Questions (Part 1) - FRS 105
Frequently asked questions on UK financial reporting for small companies.
This is the first in a new series looking at some frequently asked questions about small and micro company accounting under FRS 102 and FRS 105. This article focuses on micro-entities reporting under FRS 105.
Should a micro-entity preparing accounts under FRS 105 disclose employee numbers? Our firm’s accounting software has recently been updated and now includes this disclosure, however, I did not think this was specifically included in FRS 105.
The Small Companies (Micro-Entities’ Accounts) Regulations 2013, which introduced the micro-entity regime in the UK, mandated two note disclosures:
- advances, credit and guarantees granted to directors as required by section 413 of the Act; and
- financial commitments, guarantees and contingencies as required by regulation 5A of, and paragraph 57 of Part 3 of Schedule 1 to, the Small Companies Regulations.
The original version of FRS 105 issued in 2015 included only these disclosures under paragraph 6.2. Whilst the intention of the micro-entities legislation was that it should override all other Companies Act 2006 accounting rules for companies which qualify as a micro-entity, it has since become apparent that section 411, requiring the disclosure of employee numbers, was not specifically disapplied for micro-entities. In addition, the requirement under Section 410A to disclose off-balance sheet arrangements applies to micro-companies. In the revised version of FRS 105 issued in March 2018, the FRC has added these two disclosures to paragraph 6.2.
While the majority of the amendments in the March 2018 version of FRS 105 are applicable for accounting periods beginning on or after 1 January 2019, the two disclosures above should be applied for periods beginning on or after 1 January 2017.
In the micro-entity balance sheet format, prepayments and accrued income, and accruals and deferred income are separate line items. Given that the accounts formats are highly prescriptive for micro-entities, is it permissible to include these items within current assets or creditors due within one year (e.g. an accrual that is due within one year) where this is more appropriate?
The micro-entity formats are much simpler and shorter than the small company formats. However, the whole micro-entities regime is more prescriptive than the small companies regime, and there is no flexibility in changing the order or wording of accounts headings.
For small companies, the Small Companies and Groups (Accounts and Directors’ Report) Regulations 2008(SI 2008/409) states:
In balance sheet Format 1, accruals and deferred income may be shown:
1. Under item J, Accruals and deferred income, after provisions for liabilities or charges; or
2. Included under item E.4 (creditors due within one year) or H.4 (creditors due after one year), or both (as the case may be required).
Similarly, there is a separate heading for ‘prepayments and accrued income’ but such items are specifically permitted to be included in ‘other debtors’ which is a component of current assets.
There is no such wording in the micro-entity regulations, however, it seems reasonable to assume that the treatment is also permitted for micro-entities.
When filing micro-entity accounts at Companies House, should the balance sheet statement always refer to the small companies provisions as well as the micro-entity provisions?
Most micro-entities will prepare unaudited accounts and the options for micro entities with respect to filing unaudited accounts with Companies House are as follows:
- File the same set of micro-entity accounts that was prepared for shareholders.
- Use the option as per section 444(1) of the Companies Act 2006 – not to file the profit and loss account and/or directors report (if one was prepared) i.e. normally one would file only the balance sheet and notes.
Under the first option, the balance sheet should contain the following statements:
- The directors consider that the company is entitled to audit exemption (as per the requirements of Section 477 of the Companies Act 2006);
- The members have not required the company to obtain an audit of its accounts for the year in question in accordance with section 476; and
- The directors acknowledge their responsibilities for complying with the requirements of the Companies Act 2006 with respect to accounting records and the preparation of accounts.
- The accounts have been prepared in accordance with the micro-entity provisions.
Under the second option, the following statement should also be included:
- The company's annual accounts and reports have been delivered in accordance with the provisions applicable to companies subject to the small companies regime.
This is because the option to file only the balance sheet and notes is part of the small companies regime and is not referred to as part of the micro-entities regime.