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FRSSE replacement set for January 2016

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23rd Feb 2015
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The Financial Reporting Council published a draft standard on 19 February that will do away with the Financial Reporting Standard for Smaller Entities (FRSSE) for accounting periods beginning on or after 1 January 2016.

In its place will come the new FRS 105 ‘The Financial Reporting Standard applicable to the Micro-entities Regime’, now available from the FRC website as exposure draft 58. Contrary to a widely held belief when the micro-entities regime was first proposed, FRS 105 will require companies to present profit or loss accounts for the period in an “income statement” alongside a balance sheet.

The new standard and related amendments to the standards underpinning the new UK GAAP were necessitated by the European Union’s accounting directive, which is being written into UK law and financial standards.

Under its roll-out programme for the directive, the FRC plans to bring the new micro-entities standard into effect from 1 January 2016, with early application permitted. 

According to the FRC, the new standard will bring simplified accounting for micro entities while related changes set out in FRED  59 will align recognition and measurement of financial instruments with the treatments now required for small companies under new UK GAAP (FRS 102).

Accounts prepared under the new standard could be a lot more succinct than FRSSE, but the new standard could prove to be confusing for those who are attracted by the idea of taking advantage of the minimum possible amount of disclosure. Accounts must still present a “true and fair” view to comply with section 444(a) of the Companies Act 2006 and those preparing accounts will have to make a judgement on whether additional disclosures are needed.

After an initial review of the exposure draft, AccountingWEB’s financial reporting commentator Steve Collings, technical director at Leavitt Walmsley Associates, said: “It was expected that the FRSSE was to be withdrawn and smaller companies moved under the scope of FRS 102.  FRS 102 requires far more judgement than previous GAAP and therefore company directors and practitioners should not underestimate this.

“It was also sensible to have micro-entities report under a separate standard because even though the recognition and measurement principles are based on FRS 102, the sheer level of mandatory disclosure reductions is significant. [Although it doesn’t permit fair value rules].

Just because a company qualifies for the new regime, Collings said that it may not always be beneficial to choose that route. “Practitioners need to consider very carefully whether FRS 105 is appropriate for their client keeping in mind that it is an optional standard and due to the heavily restricted disclosure requirements, it may be more beneficial for the client to report under FRS 102 for small entities – more so if the micro-entity is expected to grow at a fast pace,” he said.

For example if a client relies heavily on finance, they might want to consider the bank’s view. Giving a set of micro-entity accounts that don’t meet their requirements may mean having to produce more non-statutory information, Collings added.

In related changes to FRS 101 (FRED 60), those preparing group accounts will be given greater flexibility to present P&Ls and balance sheets in IFRS-based formats similar to those in their group accounts.

Melanie McLaren, Executive Director of Codes and Standards explained, “Our proposals support the implementation of the new Accounting Directive in the UK and the Republic of Ireland.  They simplify reporting for some entities and are intended to assist the directors of small entities in applying their judgement to the new presentation and disclosure requirements of the accounting directive.”

The proposals are open for comment until 30 April 2015 and the final standards and amendments are expected to be issued in July 2015. A consultation overview is available along with the individual exposure drafts and impact assessments.

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Replies (14)

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By vtsoftware
24th Feb 2015 09:35

No change for most micro entities

It is useful to remember that the format and disclosures for micro entity accounts are entirely determined by the Companies Act 2006 (as amended by the micro entity regulations). By law, these disclosures are deemed to provide the true and fair view. Also by law, the directors must disregard additional disclosures required by any accounting standard.

One wonders if the FRC would have used FRS 105 to expand upon the disclosures for micro entities if their hands had not been so carefully tied by the legislators. The FRC cannot even use the true and fair override argument.

FRS 105 restates the relevant disclosure provisions of the Companies Act 2006 (which have not changed) and in effect provides a set of rules for arriving at the amounts in the accounts. Given the simplicity of most micro entities, in a large majority of cases I would expect these amounts to be identical to those arrived at under the FRSSE.

Philip Hodgson
VT Software

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Teignmouth
By Paul Scholes
24th Feb 2015 13:42

135 pages....

for a set of Micro accounts?  Give me strength, no wonder the public see us as [***].

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By wayne
25th Feb 2015 12:46

I agree with Paul.

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7om
By Tom 7000
25th Feb 2015 14:40

i agree with....

our software supplier who will no doubt implement all the relevant changes and ..the accounts look the same and no one notices...he said cynically.

Still it Keeps the boys at HQ out of mischief.

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By TerryD
25th Feb 2015 16:14

Confusion

What many people find confusing about the ME accounts rules in CA2006 is the apparent conflict between s.393 para 1A (a) and (b) which say, as pointed out above, that the directors must disregard any provision of an accounting standard which would require the accounts to contain further information relating to any item in the ME accounts. So no additional notes are required............

But para 1A (c) then says that where the accounts do contain an item of information additional to the minimum accounting items, the directors must have regard to any provision of an accounting standard which relates to that item. So additional notes might be required?

I've assumed this to mean that if the minimum accounting rules are insufficient to give a true and fair view, additional notes might be required. But then s. 396 para 2A says that the minimum accounting rules are presumed to give a true and fair view. So is that meant to be a rebuttable presumption? Is so, in what circumstances? Will the presumption be rebutted if the ME accounts do not comply with the recognition and measurement provisions of FRS105? But with accounting policies not disclosed, how would that ever be apparent?

Or does s. 393 para 1A (c) simply refer to a situation where the directors decide that they want to disclose something additional for a particular purpose, maybe to make the accounts look better (e.g to explain an exceptional loss in the year, or to mention an event after the balance sheet date)?

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By mikeyban
25th Feb 2015 19:41

Turnover low
Reading this.... A turnover of £632000 seems very low.... Have I understood this correctly?

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By North East Accountant
26th Feb 2015 08:02

Whats with numbering

Have I missed something but what about FRS103 and FRS 104?

Why FRS105?

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By TerryD
26th Feb 2015 09:37

Yes

This is purely for micro-entities: other small companies will be using the small companies' section of FRS102. FRS 103 is Insurance Contracts and 104 is Interim Financial Reporting - can't think how you missed them!

 

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Replying to Wanderer:
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By Bonty
07th May 2015 14:05

Small companies section in FRS102?

TerryD wrote:

This is purely for micro-entities: other small companies will be using the small companies' section of FRS102. FRS 103 is Insurance Contracts and 104 is Interim Financial Reporting - can't think how you missed them!

 

 

I am confused. Which section is that?

FRS102 Section 1.3 suggests small companies may still apply the FRSSE

FRS100 4a suggests the same

while the FRSSE (effective Jan 2015) says the same in par8.

I cannot see a small companies section in FRS102?

 

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By TerryD
26th Feb 2015 09:45

Taking up Paul's point above, in an idle moment I compared the number of pages in this FRS105 (for tiny, simple companies) to FRS102 (for all big and complicated companies). Measuring them both on the FRC website versions and excluding the appendices, etc., FRS 102 has 190 pages and FRS105 has 106 - and FRS105 contains no disclosure requirements, of course, only recognition and measurement! Why not just say MEs must follow the measurement and recognition rules in FRS102 (that would be one page)?

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By North East Accountant
26th Feb 2015 12:01

Half asleep

quite right TerryD, I must have been half asleep!

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By AndrewV12
26th Feb 2015 13:11

Good article.
I like the headline, straight to the point FRSSE replacement set for January 2016

 

RFS 105,! I am still getting to grips with FRS 102.

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By Bonty
07th May 2015 14:13

Got it

Apologies, got it  - FRED 59

We have to appreciate amendments suggested 3 months after the effective date, I suppose

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By TerryD
07th May 2015 14:15

It's in the revised version of FRS102 - I think it will be section 1A. But, as far as I am aware, the thing has not yet been published. I think it's expected "in the summer". This new version will apply to years beginning on 1 January 2016 or later, so FRSSE 2015 will still apply for one year only, but I think you can adopt the new FRS102 early to avoid having to change accounting standards twice in successive years.

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