TT243: Small company simplification also brings options
Changes introduced by the EU New Accounting Directive (by SI 2015/980) will have significant changes for small entities for periods commencing on or after 1 January 2016.
Let us consider the current framework applicable to all entities.
Current UK financial reporting framework
The new UK GAAP framework has paved way to a more simplified system replacing the old mixture of different standards and inconsistencies with the international framework.
For accounting periods commencing on or after 1 January 2016 the UK financial reporting framework can be summarised as follows:
|IFRS||FRS102||FRS102 (reduced disclosure under section 1A)||FRS105|
|Large & Medium||?||?|
*A small entity may choose to adopt a framework in excess of required as indicated by above.
New company thresholds
For accounting periods commencing on or after 1 January 2016 the definition of a micro, small and medium sized company is one that meets two out of the following criteria (subject to certain exclusions contained within the Companies Act):
Not more than
Not more than
Not more than
|Balance sheet total||£316,000||£5.1m||£18m|
The UK audit exemption threshold has increased accordingly with effect from 1 January 2016 with companies qualifying as small under the above thresholds (again subject to certain exclusions contained within the Companies Act) being exempt from a statutory audit.
Filing of accounts
Small and medium sized companies will no longer have the option to file abbreviated accounts at Companies House.
A new concept of “abridged” accounts for small companies will be available if all shareholders agree although this will not allow dispensation of required notes. Micro entities may file the full version of the Micro accounts or file the balance sheet and required notes only.
Whilst the new UK financial reporting framework will lead to simplification for most small entities, companies will need to consider:
- The removal of abbreviated accounts could lead to more information in the public domain;
- The choice of framework has an impact on recognition and measurement principals which impacts on reported profits, tax, shareholders’ funds and distributable reserves;
- The choice of framework has an impact on presentation and disclosure principals which could impact on other stakeholders perception;
- Transitional options from the old to the new framework.
- Small companies, under the new company thresholds, may choose to retain the audit or similar assurance review for:
- Shareholder or other stakeholder interest;
- Requirement of lender, credit rating agencies etc. or companies looking to obtain new finance;
- Long term exit planning, for example, a future sale;
- Fraud prevention and/or reassurance to directors where a company outsources aspects of its accounting or finance functions;
- Assurance depending on the directors assessment of the level of financial reporting risk;
- Assurance to a parent company or parent company auditor.