Save content
Have you found this content useful? Use the button above to save it to your profile.
AIA

FRSSE updated for micro-entity reporting

by
29th Apr 2014
Save content
Have you found this content useful? Use the button above to save it to your profile.

Steve Collings presents an overview of the new reporting requirements that apply to micro-entity accounts for years ending on/after 30 September 2013.

On 29 April 2014, the Financial Reporting Council (FRC) issued amendments to the FRSSE (effective April 2008) and (effective January 2015) relating to the micro-entities reporting legislation that now applies for financial years ending on or after 30 September 2013. 

The new amendments apply to financial statements that are filed on or after 1 December 2013 and only relate to UK micro-entities; the Republic of Ireland does not currently have an equivalent regime, but if such legislation is issued in the Republic of Ireland, the FRSSE will be further amended.

Financial reporting in the UK is undergoing a substantial period of change, most notably with the introduction of FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland for accounting periods commencing on or after 1 January 2015 and also small company financial reporting changes.

The micro-entities legislation allows qualifying companies to take advantage of certain exemptions in the preparation of their financial statements. This new regime forced the FRC to make changes to the FRSSEs (effective April 2008 and January 2015) because without such changes, a micro-entity would not be complying with the requirements of the FRSSE.

Financial statements prepared under the micro-entities regime are ‘presumed’ to give a true and fair view. To all intents and purposes, the FRC did not have much choice but to issue these amendments to incorporate the new EU micro-entities regime into the FRSSE.

The definition of a micro-entity is contained in sections 384A and 384B of the Companies Act 2006. A company qualifies as a micro-entity in a year in which it does not exceed two or more of the following criteria:

  • Turnover £632,000
  • Gross assets £316,000
  • Employees 10

The above conditions must be met for two consecutive years (with the exception of a newly incorporated company) and where a company does not meet the conditions for two consecutive years it must cease to be a micro-entity.

Example - qualification not met in the current period

A company qualifies for micro-entity classification in the previous accounting period. However, in the current accounting period the company no longer meets the criteria.

In this instance, the company may continue to claim the exemptions available in the current period. If, in the succeeding accounting period the company reverts back to meeting the criteria, the exemptions will continue uninterrupted.

The micro-entities’ legislation will not apply to:

  • Certain financial institutions (for example investment undertakings and credit institutions)
  • Companies that voluntarily prepare consolidated financial statements (and those entities included in consolidated financial statements); and
  • Limited liability partnerships.

Amendments

The FRSSE (effective April 2008 and January 2015) has been amended with a new paragraph 1.2 that says a micro-entity preparing its financial statements in accordance with section 393(1A) (individual company accounts which give a true and fair view) must disregard all the presentation and disclosure requirements contained in the FRSSEs (and this includes the formats for both the balance sheet and profit and loss account). However, micro-entities should still apply paragraphs 2.40 and 2.42, which relate to financial statement formats and the notes which only apply to micro-entities.

Example - additional disclosures

A company qualifies as a micro-entity but chooses to provide additional disclosures concerning related party transactions.

Paragraph 1.2(a) says that where a micro-entity chooses to provide an item outside the micro-entity minimum accounting items, it should follow the FRSSE treatment for that item. As a consequence, the entity should have regard to Section 15 Related party disclosures in the FRSSE.

Micro-entities preparing financial statements based on the minimum accounting items specific to such entities can only apply the specific paragraphs of the FRSSE that apply to micro-entities. The intention here is let micro-entities take advantage of the reduced presentation and disclosure requirements while still complying with the recognition and measurement requirements of the FRSSE (although the amended FRSSEs simplify the recognition and measurement of fixed assets and investments for micro-entities).

Accounting policy amendments

There are also some new accounting policy issues that relate only to micro-entities:

  • Micro-entities will not be able to adopt the revaluation model in respect of tangible fixed assets
  • Fixed asset investments will not be measured at market value
  • Investment properties will be carried under normal fixed asset rules (ie cost less depreciation and impairment instead of fair value); and
  • Current asset investments will no longer be measured at current cost.
Example - change in accounting policy

A company that qualifies as a micro-entity has a building that was carried under the revaluation model in accordance with paragraph 6.23 of the FRSSE and has chosen to report under the micro-entities legislation.

As the company will not be able to adopt the revaluation model it must account for the building at cost less depreciation and impairment. This will be a change in accounting policy and therefore the amounts for the current and corresponding periods must be restated on the basis of the new accounting policy.

If, on the other hand, the company wished to continue reporting under the revaluation model it could continue using the small companies’ regime (and report under ‘full’ FRSSE) as the micro-entities regime is not mandatory.

Problems could arise with this accounting policy change as a previous revaluation amount cannot be used as “deemed cost” where a micro-entity previously carried tangible fixed assets under the revaluation model. The micro-entities regime only allows micro-entities to use historical cost accounting rules and these require fixed assets to be recognised at purchase price or production cost.  So using a previous revaluation would give rise to inconsistencies with the new legislation for micro-entities.

Financial statement presentation

Under the micro-entities legislation, the balance sheet can be prepared under Format 1 or Format 2 as follows:

Balance sheet - Format 1

A.         Called up share capital not paid

B.         Fixed assets

C.         Current assets

D.         Prepayments and accrued income

E.         Creditors: amounts falling due within one year

F.         Net current assets (liabilities)

G.         Total assets less current liabilities

H.         Creditors: amounts falling due after more than one year

I.          Provisions for liabilities

J.         Accruals and deferred income

K.         Capital and reserves

Balance sheet - Format 2

ASSETS

A.         Called up share capital not paid

B.         Fixed assets

C.         Current assets

D.         Prepayments and accrued income

LIABILITIES

A.         Capital and reserves

B.         Provisions for liabilities

C.         Creditors*

D.         Accruals and deferred income

*creditors due within and after more than one year should be shown separately.

The profit and loss account can only be prepared under Format 2 as follows:

A.         Turnover

B.         Other income

C.         Cost of raw materials and consumables

D.         Staff costs

E.         Depreciation and other amounts written off assets

F.         Other charges

G.         Tax

H.         Profit or loss

Notes to the financial statements

Micro-entities must include notes at the foot of the balance sheet which provide disclosure of:

  • Guarantees and other financial commitments as follows:

o    Charges on the assets of the company to secure third party liabilities and, where practicable, the amount secured

o    Other contingent liabilities not provided for showing the amount (or estimate) of that liability; its legal nature and whether any valuable security has been provided and, if so, what

o    Aggregate, or estimated, amount of contracts for capital expenditure unprovided for (where practicable)

o    Particulars of any pension commitments included in any of the provisions headings in the balance sheet as well as any such commitments where no provision has been made

o    Particulars of any pension commitments which relate wholly or in part to pensions payable to past directors of the company as far as it relates to such pensions

o    Financial commitments that have not been provided for and are relevant in assessing the state of the entity’s affairs

o    Any commitments in the sub-bullets above which are undertaken on behalf or, or for the benefit of, a parent company, fellow subsidiary or any subsidiary of the parent. These must also be disclosed separately from other commitments.

  • Directors’ benefits: advances, credits and guarantees as follows:

o    Details relating to advances and credits granted by the company to its directors as well as details of guarantees of any kind entered into by the company on behalf of the directors

o    In respect of advances or credits, particulars of its amount; indication of the interest rate; main conditions and any amounts repaid

o    For guarantees, particulars of its main terms; amount of the maximum liability that the company may incur and any amount paid/liability incurred by the company for the purposes of fulfilling the guarantee (this also extends to any losses incurred for the enforcement of the guarantee)

o    Totals relating to the amount of advances or credits and any amounts repaid; the amount of the maximum liability that may be incurred by the company in respect of a guarantee and any amount paid/liability incurred by the company for the purposes of fulfilling the guarantee together with any loss incurred for the enforcement of the guarantee.

The requirements relating to directors’ benefits such as advances, credit and guarantees relate to any person who was a director at any time during the financial year and apply to every advance, credit or guarantee subsisting at any time in the financial year to which the accounts relate, whenever it was entered into and whether or not the person concerned was a director of the company at the time it was entered into.

Effective date

The micro-entities accounting regime in the FRSSEs are effective for accounting periods ending on or after 30 September 2013 for those companies filing accounts with Companies House on or after 1 December 2013. Early adoption is not permissible.

Replies (24)

Please login or register to join the discussion.

Teignmouth
By Paul Scholes
29th Apr 2014 19:55

Excellent

Thanks Steve - such a relief that I'll no longer have to impose upon, and charge for, stuff that clients (and I) don't give a monkeys about.

Thanks (3)
By jon_griffey
30th Apr 2014 14:27

Whats the point

I have just run off a set of Micro Entity accounts and they omit so much that they are largely meaningless.

There is no mention of dividends, no notes to the accounts or anything.  i.e. information that the likes of mortgage lenders will want to see.  So it will create work further down the road when lenders demand to see 'proper' accounts.

I can't see that I will bother with them.  The work needs to be done anyway to put the numbers together.  With modern software it involves very little additonal effort to tick the box to run off a full FRSSE set.  For companies this size FRSSE disclosures are not onerous.

Thanks (4)
avatar
By TerryD
30th Apr 2014 14:33

Can't see it saving much time

We'll still have to load the same numbers onto the software (which does the rest), still have to make sure proper accounting policies are followed, etc., etc. Directors' report is still needed. Detailed P & L still needed for tax. And if a micro-entity ever asks me to provide an audit report, I'll run a mile! I know they are "presumed" to show a true and fair view - but do they?

Thanks (1)
Teignmouth
By Paul Scholes
30th Apr 2014 15:03

Missing the point

All the extra disclosures, even under FRSSE, and the cost of the software that we use to make it so easy for us, become redundant, which makes it so much easier for businesses to do it themselves.  

I'd guess that once my clients & I are happy with the P&L and Balance Sheet in their bookkeeping perhaps 60%-70% of mine would have no problem sticking the numbers into the Govenment's software, with me charging £100 year one to show them how.

As I've said on other threads, we will reach the point where the client gets to the year end, presses one key to submit the VAT return, another their RTI and a third to submit the accounts.  Or, more correctly, new businesses will do it themselves (as 30%+ are already doing) without ever thinking of getting an accountant.

Jon's point about lenders forcing the issue was the same doubt cast when Ltd Company's became exempt from audit and then small company disclosures came in.  They would not dare to force businesses to increase red tape when a government said it was unnecessary.  

No Jon the accounts don't say what the dividends are, and don't even go on about the accounting policies, or director's remuneration, so what?  I don't want to waste my time even checking what Iris produces automatically year after year or explain to new clients all that wasted e-paper in the notes.  You are right the numbers (in the books), that I'm discussing with them throughout the year, are the important bit, the bit at the end is just some red tape.

 

Thanks (1)
Replying to Glennzy:
avatar
By AndrewV12
09th May 2014 09:30

Businesses preparing their own Accounts

I would not worry to much, Accounts and taxation are all smoke and mirrors to most clients.

Thanks (0)
avatar
By Ayesha Bham
30th Apr 2014 15:23

True and fair
I too don't think I'm going to bother with this nonsensical farce that's been dreamt up. It's going to be a nightmare dealing with HMRC side of things. How are they going to deal with these accounts that are nothing much more than abbreviated accounts? And what about Companies House?
I cannot see how the accounts CAN give a true and fair view if all they are is a beefed up version of abbreviated accounts.
Also why have they stopped small companies using the revaluation accounting system? Surely that system produces numbers which are more fairer than cost?
This has got disaster written all over it.

Thanks (0)
avatar
By mikeyban
30th Apr 2014 16:46

Totally agree... Pointless and ridiculous and will be farcical.

Balance sheet with foreign names... Software
makes it easy...

Continue as we are!

This is as always unnecessary!

Thanks (1)
avatar
By leon0001
30th Apr 2014 18:09

BEWARE !

6.  In section 444(1) of the 2006 Act (filing obligations of companies subject to the small companies regime)—

(a)for subsection (3) substitute—

“(3) Subject to subsection (3A), the copies of accounts and reports delivered to the registrar must be copies of the company’s annual accounts and reports.”;

(b)after subsection (3) insert—

“(3A) Except where subsection (3B) applies, where a company prepares Companies Act accounts—

(a)the directors may deliver to the registrar a copy of a balance sheet drawn up in accordance with regulations made by the Secretary of State, and

(b)there may be omitted from the copy profit and loss account delivered to the registrar such items as may be specified by the regulations.

These are referred to in this Part as “abbreviated accounts”.

(3B) This subsection applies in relation to the Companies Act individual accounts of a company if—

(a)the company qualifies as a micro-entity (see sections 384A and 384B) in relation to a financial year, and

 

(b)those accounts are prepared for that year in accordance with any of the micro-entity provisions.”

 

Am I right in thinking that where a company prepares micro-entities format accounts, the P&L account MUST be included in the public information filed at Companies House?

 

If so, would your client want you to do this? 

Thanks (0)
Teignmouth
By Paul Scholes
30th Apr 2014 19:09

BEWARE NOT !

Horse's mouth

Section 6 of: http://www.companieshouse.gov.uk/about/gbhtml/gp2.shtml#ch6

 

 

Thanks (0)
Replying to pdorrington:
avatar
By leon0001
01st May 2014 11:41

BEWARE NOT indeed

Whoops!

So stuck in the habit of submitting abbreviated accounts that I forgot that s444(1) still applies - a small company must file a balance sheet but doen't have to file its P & L or directors' report.

Kindly disregard original post.

Thanks (0)
By ireallyshouldknowthisbut
01st May 2014 09:15

@Paul, you seem pretty up on all of this, must admit to lagging behind somewhat.

The question for me is, will HMRC accept the micro accounts without a detailed P&L?

I am all for reducing paperwork in the downward direction.

 

Thanks (0)
Replying to John Stone:
By jon_griffey
01st May 2014 10:25

Apparently so

ireallyshouldknowthisbut wrote:

@Paul, you seem pretty up on all of this, must admit to lagging behind somewhat.

The question for me is, will HMRC accept the micro accounts without a detailed P&L?

I am all for reducing paperwork in the downward direction.

My understanding is that even before micro accounts, as a detailed P&L is not a statutory requirement, HMRC cannot insist on it as a matter of course.  They can of couse open an enquiry and get the information that way.  Apparently there are firms out there that as a matter of course don't send a detailed P&L with the CT600.

This being the case it would seem that HMRC cannot defy Parliament's will to deregulate, and so if micro accounts with no P&L are filed then they will have to lump it.  Seems to run a coach and horses through the iXBRL regime - if there is barely anything left to tag then what's the point?

As things stand at the moment a lot of firms already give more than the minimum disclosure in FRSSE accounts, for example full fixed assets, debtors and creditors note plus a detailed P&L.  We certainly do. It seems that this is necessary to make the accounts meaningful so I foresee continuing with this.

Thanks (0)
avatar
By David Gordon FCCA
01st May 2014 11:18

micro accounts & HMRC

 

 HMRC

 What the Company Act regulations are, is irrelevant.

 HMRC are entitled to receive accounts and or returns which give a reasonable explanation of the business and its activities.  If not, HMRC are entitled to raise the dreaded "Aspect enquiry".

 Which is why I always attach a set of  (Approved & signed) detailed financial statements to ITRs and or CT600s. The accounting and the Personal tax software I use painlessly produces these- PDF and iXBRL.

As far as Co.Hse is concerned I use the Co.Hse formats provided online. Simples!

 The software deals with those very few clients not entitled to use "Abbreviated Accounts".

  As far as third parties are concerned, the software will also produce what I call "Shareholder" accounts. Something between fully detailed and Companies House.

 FRSSE

 I do not use FRSSE because: if you use FRSSE you have to check that you meet each requirement thereof.  With most of my one or two-person company clients, this becomes onerous. So the accounts are prepared on "Acceptable accounting principles".

Notes to the accounts

Just because, per regulations, notes are not necessary- does not mean you should not include them.

Even the minimum we file at Co.Hse should mean something.

There is an enormous difference in perception between a summary account simply showing e:g: £120k creditors and £10k profit. As compared to the same account containing the note:-

Creditors includes £80k due on director's a/c, Profit is stated after a £100k dividend.

The bottom line is- I really cannot fathom why my beloved colleagues get into such a "TizWoz" over this stuff.

 

Thanks (0)
avatar
By Ken Howard
01st May 2014 12:16

Bare minimum plus detailed P&L - job sorted

We're doing the bare minimum statutory accounts which is basically the shortened directors report, statutory format P&L and BS followed by a sheet giving balance sheet analyses and a sheet giving P&L analyses, both of which will be submitted to HMRC via the CT return.  Co House just get the BS.  HMRC are happy they get the P&L analyses just like they've done for years when it's been attached to the back of the full accounts.

The benefit is that we don't have all the stupidity of notes and analyses that are not of any remote interest to anyone, certainly not the person who matters, i.e. the client.  

What I find really sad is the full circle we've come round over the last 30 years.  When I started as a trainee, the limited company accounts were a lot simpler.  First, we had the companies act (1982 was it) which brought in the rigid formats, then the auditing regs which meant "proper" audits were needed for even the smallest/simplest family businesses.  Then, over the years, these new rules/laws have been watered down slowly and we're now virtually back where we started, i.e. simpler accounts and no onerous audits.  What a waste of time, effort and money over the intervening period!  Small family businesses should never have been brought into the more rigid audit/reporting regimes in the first place.

 

 

 

Thanks (1)
By ireallyshouldknowthisbut
01st May 2014 17:56

For VT users

I have had a good play with VT's formats this morning.

And its quite neat if you are a VT customer.

The default set up sends a single balance sheet sheet (!) to CH, and a more comprehensive set with 'non statutory' bits to HMRC. 

You can add in 'padding' if you like, ie the accountants report, cover sheet etc in the normal way. Your practice's call.

The only bit I am struggling on is getting the director's loan to work well as its floating around under the balance sheet. Will come back to that one.

Thanks (0)
avatar
By Jekyll and Hyde
01st May 2014 13:22

The main benefit I can see from micro entity reporting is...

.....No requirement to disclose related party transaction notes. Therefore not having to ask questions that the client does not understand or even care about.

For me this one reduction is probably enough to get me moving towards using it.

Thanks (0)
Teignmouth
By Paul Scholes
01st May 2014 15:42

Thanks Ken

Thought it was just me walking through the flock in the wrong direction.....Baaaah!

Iris (as always) has got it sussed, with the addition of a detailed P&L for the client and, if you want, HMRC, with all the tagging pre-done, including now the detailed P&L.

You are so right talking about full-circle, at least we don't still have to prepare accounts in pence and in landscape format.

This is all so reminiscent of the demise of the audit requirement with accountants seeing the change either as a welcome opportunity or a threat to their business and ivory tower.

When I started out, my principal, the senior partner, was FCA and a Chartered Secretary and the firm made great use of his skills in minute writing, drafting Memos & Arts and filling out all those nasty Companies House forms.  I've just checked and the Institute of CSs are still alive and kicking, but not for 95% of businesses in this country.

As an aside, he always refused to keep time sheets, seeing them as a new-fangled waste of time from the States, so he continued to quote in advance for his clients' work.  Full circle indeed.

Thanks (0)
avatar
By TerryD
01st May 2014 16:43

just one more thing....

Whilst I agree wholeheartedly that it seems iniquitous that the client should be forced by law to pay for the preparation of accounts containing detailed information which he neither wants nor needs, and HMRC's wants can be easily satisfied under this new regime, there is, however, one more group of people whose wants seem to have been overlooked. The general public. It used to be a common adage that the accounts and audit was the price the proprietors had to pay for the protection afforded by limited liability. That has now been completely eroded for small companies, leaving the way clear for any crook to form a limited company and walk away from the wreckage leaving a trail of debts, with no risk to his personal possessions. I've no idea whether or not such occurrences have increased since deregulation started, and I accept that if the crook is determined enough, he can circumvent any obstacle that is put in his way by laws and regulations. Nevertheless, I do not think that we should overlook the interests of Joe Public as he does, after all, have a stake in all this.

Thanks (1)
Teignmouth
By Paul Scholes
01st May 2014 17:40

Terry - don't forget HMRC

I have some sympathy was your point and certainly there are thousands of cases where the owners of sham companies have walked off with money taken from Joe (and Janet) Public and other businesses.  There are also a huge number of companies run and then stuck off without full (or accurate) recording of profits leading to a millions of lost tax to the Exchequer.

Years ago Ltd Companies were not the norm for small business and so it was reasonable to be able to rely on accounts/audit but now, with millions of the things, and the inability of the government to police it Joe & Janet just have to be wary whenever they part with money.

Then of course you have the rogue traders who learn about accounts & tax (and might even get the qualification) and who produce great looking numbers and can fool the auditors & HMRC, eg Banks & Insurance Companies, any one of which doing as much damage as a million micro-entities.

Thanks (0)
By ireallyshouldknowthisbut
01st May 2014 17:55

Update for VT users.

Update: I think I got there in the end. I now have a fully customised set of VT templates set up, slightly more on them than the standard ones but that's just me. I like a cover sheet and an accountants report for example. 

Having spent approx 4 hours looking at the rules on this and customising all the templates for my personal preferences there is going to be a saving of approx 5-10 minutes per client plus a few sheets of paper. 90 minutes of this was wrestling with automating the director's loan notes which took a bit of doing to get it all formatted but will avoid having to key it each time and change director(s) and the (from)/(to) which is fiddly are likely to produce errors. 

So its going to take me about 30-40 sets of accounts to return today's investment, but 'it all helps' and in some cases it could save 15-20 minutes in some cases on more complex notes which I can now completely ignore for reporting purposes so in the longer term it probably is time well spent. 

I like simple and it gets rid of quite a few notes they no-one ever read or understood anyway. 

Only niggling doubt is I now need two formats, one for micro and one for abbreviated, rather than one universal set for all but I am pleased.

Best use the thing tomorrow!

Thanks (1)
avatar
By AndrewV12
09th May 2014 09:34

Cutting down on down on information in the Accounts

I agree with the comments above and would add if this carry's on soon the Accounting report will be 3 pages long and meaningless, it may effect fees. 

Thanks (0)
avatar
By User deleted
10th May 2014 12:52

Why bother you can abbreviate accounts

This has no consequence so long as those ABBREVIATED ACCOUNTS are available on Co Ho website!!!

Thanks (0)
avatar
By David Gordon FCCA
12th May 2014 10:38

In real life.

 In real life if you are a careful person, you must remember two guiding principles.

 1) The old sail training adage: "One hand for yourself, and one for the ship"

 2) The insurance principle. Traveling via commercial airlines is the safest form of transport. Nevertheless because, God forbid, airplanes still fall out of the sky, if we are wise we take insurance. So it is with preparing accounts.

 Whatever we do for clients, it should be clear that we have conscientiously done our work.

 A cautionary tale: For many years as a sort of favour I prepared acs for a small flat management company. Total income average about £3k. Fee was sufficient to buy a packet of crisps. Any way a couple of months ago the two unpaid directors got themselves into a hissy spat. Reason flew out of the window.

 As a result I received a long letter from one of the protagonists, as you do. Its tone clearly indicated that she had swallowed the companies act and various other stuff. Fortunately I had never taken shortcuts on the accounts. So a brisk letter back pointing out the information in the accounts ended my involvement with this entity. The point of the anecdote is never assume that just because it is a "nothing" company, it does not matter. The capacity to cause aggravation has never been related to the size of the client.

 

Thanks (0)
avatar
By Martin B
30th Sep 2014 14:11

FRSSE updated for micro-entity reporting

Flagging

Thanks (0)