10 things you might not know about FRSSE

The Financial Reporting Standard for Smaller Entities (FRSSE) has been with us since 1997. It’s become a much-loved standard for the profession because it offers a lot less onerous disclosure requirements than full UK GAAP and simplifies a lot of areas. Steve Collings reports.

The reduced reporting requirements inherent in FRSSE often mean that in some cases FRSSE might not cover a certain issue.  In such situations the user has to default back to full UK GAAP to decipher the correct accounting treatment or disclosure requirement in order that the accounts they are preparing under FRSSE can still achieve the truth and fairness provision under Companies Act 2006.

In this article I will summarise 10 issues relating to FRSSE which you might not be aware of and, where relevant, I will point you in the right direction of where to look.

Continued...

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Comments
carnmores's picture

thank you

carnmores | | Permalink

very interesting

Clarification - what is a "small company"?

bazzster | | Permalink

What are the thresholds for being classed as a "small company" under this standard?

TrevorJSmith's picture

Related Party Transactions under FRSSE.

TrevorJSmith | | Permalink

Thank you Steve.

What is considered material for FRSSE purposes when considering Related Party Transactions? Is there further guidance on this, please.

 

 

 

Steve Collings's picture

Small Company    1 thanks

Steve Collings | | Permalink

For Bazzster:

A small company is one which for 2 successive years can meet 2 out of the following 3 criteria:

  • Turnover less than £6.5 million
  • Balance sheet total (fixed + current assets) of £3.26 million
  • Less than 50 employees

All the best

Steve

Dividends ?

Barkster | | Permalink

Should one disclose dividends to shareholders who are also directors under "Related Party Transactions" ?

Steve Collings's picture

Materiality    2 thanks

Steve Collings | | Permalink

TrevorJSmith wrote:

Thank you Steve.

What is considered material for FRSSE purposes when considering Related Party Transactions? Is there further guidance on this, please.

Hi Trevor

Materiality is a judgemental thing.  FRSSE does not have any sort of monetary or definitive "benchmarks" as to what is and what is not material - it's left to the directors to determine whether something is material or not.  Basically something can be material in monetary terms or material in nature (e.g. directors transactions).  Consider a multi million pound turnover company with a £100 issued share capital which the director-shareholders have transferred up to a newly formed "holding" company.  £100 on the face of it might seem immaterial in the context of a multi-million pound turnover company, but the nature of the transaction itself would be considered material.

All the best

Steve

Insolvent balance sheet

Barkster | | Permalink

I have just produced a set of accounts where the balance sheet is insolvent but there are substantial director's loan balances - basically it's a fledgling business which they are trying to get going.

Is there some sort of disclosure I need to make under FRSSE regarding this ?

Steve Collings's picture

Dividends    1 thanks

Steve Collings | | Permalink

This is one of (if not the) most common questions lecturers on the CPD circuit are asked :)

Yes, dividends should be disclosed as a related party transaction when they are paid to directors in their capacity of shareholders.  The reason is that pre April 2007 it was fairly easy to calculate the dividend paid to director-shareholders because the report of the directors contained the director(s) holding in the share capital.  Because disclosure of shareholding was repealed it was no longer obvious how much of a dividend was paid and therefore the FRS 8 requirements were no longer fulfilled and therefore disclosure of a dividend paid to a director-shareholder IS required.

All the best

Steve

mr. mischief's picture

my standard note

mr. mischief | | Permalink
Ultimate controlling party          
The company was under the control of Mr. X throughout the current and previous period.
Mr. X owned 100% of the issued share capital throughout the current and previous period.
No transactions with related parties were undertaken such as are required to be disclosed under the Financial Reporting Standard for Smaller Entities (effective April 2008), except for those disclosed below.
               
          2011    2010 
          £    £ 
Equity dividends paid to Mr. X   -   -
Balance owing (to) / from Mr. X     -   -

This is the standard note I am using, can it be improved on?

Steve Collings's picture

DLAs - FAO Barkster

Steve Collings | | Permalink

Hi

I would be making some sort of disclosure about the funds introduced - especially if they are substantial including any interest rates that the directors might be charging the company and any terms which they have imposed (though in real life interest will be a 0% and there won't be any terms) but I think disclosure should be made.  Usually directors current account balances are also shown separately in the breakdown of creditors in the notes to the accounts.

Best regards

Steve

 

Steve Collings's picture

Controlling party

Steve Collings | | Permalink

mr. mischief wrote:

Ultimate controlling party          
The company was under the control of Mr. X throughout the current and previous period.
Mr. X owned 100% of the issued share capital throughout the current and previous period.
No transactions with related parties were undertaken such as are required to be disclosed under the Financial Reporting Standard for Smaller Entities (effective April 2008), except for those disclosed below.
               
          2011    2010 
          £    £ 
Equity dividends paid to Mr. X   -   -
Balance owing (to) / from Mr. X     -   -

This is the standard note I am using, can it be improved on?

I wouldn't be making any reference to the actual % of shares owned by the directors because there is no need to.  I'd just say that Mr X is the ultimate controlling party by virtue of his controlling shareholding in the company.  Job done.

Best wishes

Steve

mr. mischief's picture

Many thanks!

mr. mischief | | Permalink

Many thanks!

cfield's picture

Directors remuneration

cfield | | Permalink

Thanks Steve, yet another useful article, keep them coming!

Should Ultimate Controlling Party go in abbreviated accounts? I used to put it in but discovered it was only required by the FRSSE which does not apply to abbreviateds. Is there a CA requirement for this to go in? I never see it in accounts I download from Companies House, but most of them omit RPs too so they're probably wrong anyway.

Also, should salary paid to a director's wife or other close family go in the Director's Remuneration note?

Chris

Good article

Ayesha Bham | | Permalink

Another good article. Quite interesting about the valuer issue as I had a dispute over this with another accountant. Just one question what happens if no one director controls the company but they all have same shareholding. I get conflicting information with this.

Steve Collings's picture

Controlling party - FAO C Field

Steve Collings | | Permalink

Hi,

Ultimate controlling parties are required by FRS 8 rather than Companies Act and therefore you don't need to include it in the abbreviated's. Abbreviated financial statements are not intended to give a true and fair view hence why most related party issues (other than transactions with directors) can be omitted.

 

Wife's wages are not included in director's remuneration if the wife is not a director.  

Regards

Steve

 

p.s. apologies - I meant to use the quote button but forgot the new site has this!! Doh!

Steve Collings's picture

Directors shareholding

Steve Collings | | Permalink

Ayesha Bham wrote:
Another good article. Quite interesting about the valuer issue as I had a dispute over this with another accountant. Just one question what happens if no one director controls the company but they all have same shareholding. I get conflicting information with this.

Hi

It would depend on whether all directors are actively involved in the running of the company and whether they all influence the financial and operating policies of the company.  I would tend to think in a SME this would be the case, in which case all directors would be the controlling parties because they act "in concert".  I would simply include a disclosure saying:

"The company is under the ultimate control of the directors by virtue of their ability to act in concert in respect of the financial and operating policies of the company."  

That would be sufficient enough I would think.

All the best

Steve

Euan MacLennan's picture

Abbreviated Accounts

Euan MacLennan | | Permalink

Steve Collings wrote:

Abbreviated financial statements are not intended to give a true and fair view hence why most related party issues (other than transactions with directors) can be omitted.

I don't agree.  Disclosure of transactions with related parties, including directors, is a requirement of the FRSSE, which does not apply to abbreviated accounts.  The only transactions with directors that need to be disclosed in abbreviated accounts are loans to (not from) directors, which is a CA requirement.

Directors loans

Ayesha Bham | | Permalink

Euan your point is interesting because I had this issue last year with QAD because I had omitted directors transactions in a set of abbreviated accounts. According to QAD directors transactions should be disclosed in the abbreviated accounts as well as they are covered in Companies Act. It's all very confusing.

Steve Collings's picture

Transactions with directors

Steve Collings | | Permalink

Yes my reply should have said "transactions with directors EXCLUDING loans from directors" - my terminology 'transactions' meant 'loans'.  Thanks Euan.

Ayesha presumably QAD had a problem that you omitted, or incorrectly disclosed, the CA requirements for 'advances' to directors, or some other issue which require disclosure in the abbreviated accounts.  I can only think your directors loan account transactions have not been in compliance with CA requirements.  I think lots of accountants might still be disclosing the maximum amounts that loan accounts were overdrawn during the year which is no longer required due to the new disclosure requirements.  I wouldn't have thought the inspector would be criticising the non-disclosure of loans from directors to the co given that ICAEW have guidance on this very matter which does confirm that directors loans to the company don't need disclosure in the abbreviated accounts.  If this is the case you might want to speak to technical advice, get them to send you the link to their guidance on directors transactions disclosures and send this to the inspector who performed the monitoring visit.

regards

Steve

Loans

Ayesha Bham | | Permalink

Thanks Steve. The issue was directors loans to and from the company. We have been told disclosure in the abbreviated accounts are needed.