The Financial Reporting Council (FRC) has introduced new accounting standards designed to simplify reporting for small and micro businesses.
Micro businesses will now have to report to a different standard than small businesses under the new FRS 105, while small businesses will also have to adjust to a new set of standards.
The FRC’s changes are largely a response to the EU Accounting Directive which significantly increased the size thresholds for small companies.
Small and micro companies will have to report in line with the new standards for accounting periods on or after 1 January 2016.
Micro firms now have a separate reporting standard which allows them to submit accounts with reduced disclosure. Key changes include:
- financial statements will be presumed true if they are prepared according to legislation
- simplified balance sheets and profit and loss accounts
- deferred tax does not need to be accounted for.
The standard previously used by small businesses (Financial Reporting Standard for Smaller Entities) has been withdrawn and a new section aimed at small businesses has been added to the FRS 102 standard. Reporting under FRS 102 is more comprehensive than FRS 105 but still contains reduced disclosures for small businesses.
Mandatory reporting under FRS 102 has already been introduced for medium and large companies with accounting periods on or after 1 January 2015.
Nigel Holland from Holland & Co Chartered Accountants said:
“The new legal framework which has recently been introduced and which concentrates on introducing disclosure in small company reporting, attempts to improve transparency for readers who study financial statements. I am not certain that it achieves all its objectives however in the main I am happy with these new rules.
There are going to be a very large number of businesses which are going to be hit by these new rules. I predict that as many as 1.5 million businesses are affected. It is important that these businesses are made aware of the changes and that they implement them.
The new accounting standards simply accounting requirements for lots of businesses which fall into the micro entities regime. At my firm we are already implementing the mandatory rules which apply to FRS 102 for companies with accounting periods on or after 1 January 2015.
The additional rules which are introduced under FRS 105 help to reduce red tape further. Deferred tax is very often not fully understood by many business people and I am pleased that it does not need to be accounted for under FRS 105. However this does not apply until after 1 January 2016.”