Earlier today, the Department for Business, Innovation and Skills (BIS) published its response to the consultation on UK Implementation of Chapters 1-9 of the EU Accounting Directive. Our free download Small Company Consultations summarised the consultation content.
The Q&A summary below runs through some of the key provisions in the Government's response and draft regulations.
Will small company size limits increase?
Yes. BIS intends to adopt the maximum thresholds available to determine the size of small companies for accounting exemption. This will see the turnover limit increase from £6.5m to £10.2m and similarly, the balance sheet limit move from £3.26m to £5.1m.
This may also give rise to a consequential increase in audit exemption limits, which is subject to additional consultation within the recently published Auditor regulation: discussion document on the implications of the EU and wider reforms.
Additionally, BIS intends to relax a rule that currently restricts use of accounting exemptions if a company is part of a group which contains a public company (PLC). The rule will change so as to only scope out companies that are part of a group containing a company with securities traded on a regulated market.
Will fewer notes be needed in small company accounts?
The number of mandatory notes will reduce from 'an estimated 17 to 13'. The list of notes is provided in Small Company Consultations, but there are a couple of things to consider here.
First, small companies will need to retain information for the preparation of an employee numbers note, which isn't currently required.
Second, with the FRC proposals to move small companies onto the recognition and measurement requirements of FRS 102, some of the previously hypothetical fair value disclosures (included within the 17 above) are more likely to be needed under a new reporting regime. This could lead to more disclosure in some cases!
The draft regulations permit a form of abridged accounts to be prepared for shareholders provided they all agree. They also remove the option of filing traditional 'abbreviated accounts' whilst retaining the option to refrain from filing the profit and loss account. Alternative layout options for the profit and loss account and balance sheet are also put forward which will help FRS 101 adopters to apply more consistent formats to those in their respective group's accounts.
When will these changes take effect?
Companies will be required to apply the new financial reporting framework for financial years commencing on or after 1 January 2016.
However, the draft regulations note that a company may voluntarily adopt the framework earlier if it would enable them to access a less burdensome financial reporting regime (if it has a financial year commencing on or after 1 January 2015 but before 1 January 2016). This early adoption option, however, appears to be disapplied to audit exemption criteria at this stage.
So, in effect, there will be two sets of size limits and accounting regulations that have to sit side-by-side in 2015. We'll have to wait and see on this one but it could leave some companies with multiple reporting regimes to choose from; all of which would give a true and fair view (and, in some cases, some very different answers).
The Government intends that The Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015 will come into force on 6 April 2015.
Do they say anything else of interest?
I suppose that is a matter of opinion. Here are some of the other 'highlights':
- the requirement for a micro-entity directors' report will be scrapped
- where the useful life of goodwill cannot be reliably estimated, it will be capped at ten years (though note FRS 102 caps this at five years)
- use of the equity method of accounting in individual (not just group) accounts will be permitted.
The above is intended only as a brief summary of the consultation response. Expect to see and hear more from us on the implications of these changes and the FRC response on accounting standards for small entities over the coming months.
The full Government response can be downloaded here and the draft regulations here.