Big changes to abbreviated accounts coming

istock_balance_sheet_blackred
Steven Collings
Audit and Technical Partner
Leavitt Walmsley Associates Ltd
Share this content

Accountants will have heard by now that the Companies Act 2006 has been revised for small and micro-entities as a result of the transposition of the EU Accounting Directive into UK legislation.  This will have quite a significant effect on the way that small companies prepare their annual reports and the revised Companies Act 2006 comes into mandatory effect for accounting periods commencing on or after 1 January 2016.

Abbreviated accounts

The vast majority of small companies file abbreviated accounts with Companies House as permitted in section 444 of the Companies Act 2006; specifically section 444(3A) said that a small company preparing Companies Act accounts may deliver to the registrar:

  • a copy of a balance sheet drawn up in accordance with the regulations made by the Secretary of State; and

  • omit such items from the profit and loss account as may be specified by the regulations.

For companies subject to the small companies’ regime, these accounts are currently referred to as ‘abbreviated accounts’. Section 444(3A) has been repealed in the revised Companies Act 2006 and the filing requirements for a company subject to the small companies regime are outlined in section 444(1)(a) and (b). 

Section 444(1) of the Companies Act 2006 has been amended to say that the directors of a company subject to the small companies regime:

  1. must deliver to the registrar for each financial year a copy of the balance sheet drawn up as at the last day of that year; and

  2. may also deliver to the registrar:

  • a copy of the company’s profit and loss account for that year; and
  • a copy of the directors’ report for that year.

Readers may have noticed the (extremely) subtle change in wording in the revised Companies Act 2006 from being able to file ‘a’ copy of the balance sheet to having to file a copy of ‘the’ balance sheet which is drawn up as at the last day of the accounting period.   

The legislation says that the company may deliver a copy of the company’s profit and loss account and directors’ report for the year and where the company chooses to do this (which will be quite rare in practice as most companies will only want to file the bare minimum), section 444(2) says that a copy of the auditor’s report should be delivered (except where the company has taken advantage of audit exemption) and any directors’ report. 

So what does this mean in practice? The concept of abbreviated accounts is abolished for an accounting period commencing on or after 1 January 2016. Section 444(1) offers no choice where the balance sheet is concerned; that must be filed with the registrar together with the associated balance sheet notes. The company can choose to file the profit and loss account as section 444(1)(b) says that the company may also deliver the profit and loss account and directors’ report for the year to the registrar. In practice, many companies will choose not to file the profit and loss account and simply file the balance sheet, which will be the same balance sheet as that prepared for the shareholders, whether abridged (see later) or not. In addition, the notes which accompany the balance sheet will also be filed. 

Filleted financial statements

The phrase ‘filleted financial statements’ or ‘filleted accounts’ relates to the financial statements which are submitted to Companies House. The term ‘filleted’ means that the profit and loss account and related notes have been stripped out of the financial statements and these filleted financial statements will then be filed with the registrar. Therefore the registrar receives the balance sheet and the balance sheet notes. In practice there may be more disclosure within the notes submitted to the registrar under the new filing regime than was the case for abbreviated financial statements because of the legally required disclosures for a small company that are needed in the accounts following the transposition of the EU Accounting Directive into company law. For example, the nature and financial effect of material non-adjusting post balance sheet events is a legally required disclosure and it follows, therefore that as this disclosure relates to the balance sheet, this disclosure note will be filed as part of the small company’s financial statements. In addition, any additional disclosures which relate to the balance sheet that are needed in the financial statements to give a true and fair view will also be filed. 

Where a profit and loss account is not filed, the small company’s balance sheet delivered to the registrar must disclose that fact to comply with section 444(5A)(a). If the small company is subjected to an audit, the notes to the balance sheet must:

  • state whether the auditor’s report was qualified or unqualified;

  • if the report was qualified, disclose the basis of the qualification and reproduce any statement under section 498(2)(a), if applicable;

  • if the report was unqualified, but contained an emphasis of matter paragraph (for example because of going concern issues), this emphasis of matter paragraph should be included; and

  • provide the name of the auditor and (where the auditor is a firm) the name of the person who signed the auditor’s report as senior statutory auditor.

In respect of providing the name of the auditor, if the conditions in section 506 of the Companies Act 2006 apply (circumstances in which names may be omitted), the notes to the balance sheet must state that a resolution has been passed and notified to the secretary of state in accordance with that section.

Abridged financial statements

The concept of ‘abridged financial statements’ was introduced into the revised Companies Act 2006. Abridged financial statements allow certain items in the statutory formats to be combined.  For example, an abridged profit and loss account will start at gross profit (or loss) rather than turnover as turnover, other income and cost of sales will be combined in the abridged profit and loss account. The main impact of an abridged set of financial statements will be to reduce the disclosure notes because abridged financial statements do not use Arabic numerals from the statutory formats. However, this is complicated by the fact that FRS 102 at paragraphs 1AA.2 and 1AB.2 requires directors to refer to paragraph 1A.16 and provide any additional disclosures that are considered necessary to give a true and fair view (e.g. disaggregating the information in the balance sheet and profit and loss account). Note – there is still a legal requirement for small companies to prepare financial statements which give a true and fair view. 

In terms of preparing abridged financial statements all the shareholders must unanimously agree to the abridgement. There is no majority vote, so if one shareholder does not agree to an abridged set of financial statements being prepared then the company simply cannot prepare abridged accounts. The agreement is an annual process because the shareholders can only agree to abridged financial statements being prepared in respect of the preceding financial year and hence one agreement will not cover all subsequent accounting periods. 

In respect of the filing requirements, if the company has prepared an abridged balance sheet or profit and loss account, section 444(2A) of the Companies Act 2006 requires the directors to deliver a statement to the registrar that all members have consented to the abridgement. 

Micro-entity filing issues

Where a micro-entity is concerned, such entities should file the balance sheet together with the notes, where applicable, at the foot of the balance sheet as a minimum. There is no requirement to prepare a directors’ report for a micro-entity for accounting periods commencing on or after 1 January 2016, so this need not be filed with the registrar. A micro-entity also does not have to file the Format 2 profit and loss account.

Conclusion

The changes to the filing requirements have been incorporated within the revised Companies Act 2006 and the concept of abbreviated financial statements no longer applies.  Some material published refers to abridged financial statements as abbreviated financial statements, but these are not the same as abbreviated financial statements that have traditionally been submitted to the registrar. 

Replies

Please login or register to join the discussion.

avatar
18th Nov 2015 10:25

Reading the above

I could be wrong, but it appears there will be no material changes to Abbreviated Accounts, for small entities anyway, so i can live with that, just a little tinkering here and there, all a waste of time of course, I suppose we were due for a change.

Thanks (8)
avatar
18th Nov 2015 10:57

Apologies if I am being dumb

The headline says BIG changes. I can't see any changes for our clients. They are all under the audit threshold. I hope this is true.

Thanks (10)
avatar
18th Nov 2015 11:16

I agree

yolo rolo wrote:

The headline says BIG changes. I can't see any changes for our clients. They are all under the audit threshold. I hope this is true.

 

Yes some of the headlines on this site are a bit Tabloid.

Thanks (4)
avatar
18th Nov 2015 10:58

Not sure
About if the changes are simply tweaks. I was on a course this week where the speaker said that things like related party disclosures would be filed which doesn't happen now. She also said that if a company makes going concern disclosures then these too will also be on the public record. The new abridged accounts just sound ridiculous and from what I could understand this week it's going to be a nightmare if you are preparing abridge accounts and full accounts for different companies. They've fixed something that was not broke.

Thanks (2)
18th Nov 2015 11:55

Seems to me that.......
..... Very little has changed at all.
I hope that the author got a fat fee for this article: good work if you can get it! ☺

Thanks (2)
By JimH
18th Nov 2015 12:07

FRS102 and 105

It was a shock to realise that some clients will report under FRS102 and some under FRS105 as the 2 out of 3 criteria for turnover/balance sheet total/employee numbers are set low for FRS105 micro entities. So we'll need to keep an eye on clients numbers.

It was also a shock to see how little guidance is included in some professional bodies' free to view material for members.

On a tangent, will you file accountant's report with the balance sheet and notes?

Thanks (1)
avatar
18th Nov 2015 12:14

I might be wrong
But from what I understand of this we cannot file abbreviated accounts anymore which I can see. From reading this article and from what I've learnt on courses the balance sheet that HMRC and the shareholders get will also be the same balance sheet that is filed with the respective notes rather than a balance sheet which is abbreviated.
If my understanding is right then surely all the fixed asset breakdowns and revaluations and all the detailed notes showing a breakdown of debtors and creditors will be filed?
I've not received anything from my professional body on this issue and only heard about it this week on a course but the speaker only touched on this issue. Also what will the accounts be called that are filed?

Thanks (0)
avatar
By Ammie
18th Nov 2015 12:25

KEEPS EVERYONE BUSY AND IN WORK!

However much they tweak, revise, change etc etc there will still be a highlighted shortcoming somewhere, discovered by someone at sometime and ultimately leading to more changes on the pointless merry go round. All that is happening is keeping "do gooders" busy and important.

There is absolutely no good reason or benefit why small/micro businesses need to be chopped and changed about and I have yet to find any client who really gives a hoot!

All the finer requirements should be focused on real public interest companies and not used to hinder close and family companies who just want to be left alone to earn their money pay their taxes and bills and retire peacefully.

Thanks (3)
avatar
18th Nov 2015 12:33

seems to me

The legal narrative at the bottom of the balance sheet changes, is updatsd  on the software and its business as usual, with one or 2 more notes disclosed

 

Thanks (1)
avatar
18th Nov 2015 12:51

More confusion?

Apart from giving more options and minor changes with increased disclosure is this supposed to simplify things/reduce red tape?

Are or have LLP's accounts been subject to similar changes

Thanks (0)
avatar
18th Nov 2015 13:10

EU accounting directive

... and if we decide to leave the EU will this EU inspired "simplification" be reversed ?

 

Thanks (1)
avatar
18th Nov 2015 14:19

Accounting policies

So as these are not just notes to the balance sheet then these need not be filed either?

Perhaps the simplification with all the extra "statements" will be more complicated than filing full or abridged accounts so the only benefit is business confidentiality?

This may mean more clients or new businesses decide to go it alone without professional advice and just rely on the bar room or Company House "Guidance" docs/website or even ignore it all and just file any old rubbish to tick the boxes.

Do legislators really expect that everyone will have  a working knowledge of FRS 102 and CA 2006 and will take advice if they have not?

 

 

 

 

 

Thanks (0)
avatar
18th Nov 2015 14:20

What a complete waste of time...

Is it just me or does it cause lots of work for advisers who will not be able to recover their time from clients who don't actually care at all?

If I were to have a party with all clients who have ever stated what a good, compliant set of accounts I have prepared, it might be a shade lonely!

I can only dream of the day when common sense intrudes on these matters and we get a system that (more or less) works for 99.9% of reporting entities most of the time and let the remainder have their own regime that doesn't affect the rest of us.

In terms of making investment decisions in or on a business, the statutory accounts would never be of sole interest to both clients or myself.

Rant over and back to the grindstone.

Thanks (4)
avatar
18th Nov 2015 15:24

technical helpline says
1. As a minimum we have to file the same balance sheet as that given to the shareholders so no abbreviated balance sheet so more information is likely to be on the public record because of the need to be more transparent.
2. All balance sheet notes are filed so that means if fixed assets are revalued all revaluation notes are filed. Same goes for related party disclosure and seemingly provisions for liabilities and commitments and any other disclosures which relate to the balance sheet.
3. Accountants reports will allegedly be required as well.

Wish I hadn't gone into the office today now :-(

Thanks (0)
avatar
By Briar
18th Nov 2015 16:23

Will it matter?

Will Companies House monitor compliance with the new regime?

Probably not - after all they don't do so with the current rules!

So, do the changes really matter?

Thanks (2)
avatar
19th Nov 2015 10:47

Correct

Briar wrote:

Will Companies House monitor compliance with the new regime?

Probably not - after all they don't do so with the current rules!

So, do the changes really matter?

Probably not. Although they are been picky with the company name at present. Rejecting a set of accounts with Company instead of Co. despite the firm filing the accounts for the last 30+ years with this name. Also I read, probably on Accounting Web, a set had been rejected because Ltd had been used instead of Limited or vice versa.

 

Thanks (0)
18th Nov 2015 16:48

Related party note


Is the related party note actually a balance sheet note?

Thanks (1)
avatar
18th Nov 2015 21:20

Depressed
I just get depressed by the unnessasry changes.
Can't see a reason to change.
Can see things like ensuring liabilities are captured. Ie bringing off balance sheet stuff in and potential liabilities. But it all seems too much
With this, tax changes, ML etc being a small practice is very challenging. Let alone fee pressures. Then more silly changes too. Why is it all online (or so much now - ok we know). Why abandon the ct41g. It was simple and worked. RTI, increase penalties with no tax or relation to tax.
I don't enjoy it like I used to.
The level of time you have to put in, the cost just to open the door to meet legislative requirements (forgot auto enrolment for a second) etc must lead to massive headaches, unproductive time (less generating money - making more jobs).
I think I should run the country. I'd scrap so many things we could then concentrate on important stuff.
95% of the people on the Cpd courses I go on look thoroughly fed up too.
Is it just me?

Thanks (2)
avatar
20th Nov 2015 12:14

Fed Up

steve 12321 wrote:
I just get depressed by the unnessasry changes. Can't see a reason to change. Can see things like ensuring liabilities are captured. Ie bringing off balance sheet stuff in and potential liabilities. But it all seems too much With this, tax changes, ML etc being a small practice is very challenging. Let alone fee pressures. Then more silly changes too. Why is it all online (or so much now - ok we know). Why abandon the ct41g. It was simple and worked. RTI, increase penalties with no tax or relation to tax. I don't enjoy it like I used to. The level of time you have to put in, the cost just to open the door to meet legislative requirements (forgot auto enrolment for a second) etc must lead to massive headaches, unproductive time (less generating money - making more jobs). I think I should run the country. I'd scrap so many things we could then concentrate on important stuff. 95% of the people on the Cpd courses I go on look thoroughly fed up too. Is it just me?

Not just you Steve. I come away from every update courses thinking surely there must be better ways to make a living and feeling totally fed up. More change for changes sake to keep the academics, civil servants etc justifying their cushy numbers.

Don't let it get to you though as it's the mad world we live in.

Thanks (2)
avatar
19th Nov 2015 10:59

Fixed Asset Note

I currently prepare my Fixed Asset Note so that the reader gets useful information, ie meaningful column headings/fixed asset classifications (computers/fixtures/vehicles) in the knowledge that only Total Fixed Assets column is shown in notes to the abbreviated accounts.  However I believe that the current statutory minimum for Tangible Assets is the two headings Land and Buildings plus Plant and Machinery.  So if this remains and there is the desire to minimise information on the public record this would mean that the shareholder 'full' accounts will contain less information, ie the business owner is getting 'less'.

Similarly the disclosure notes for debtors and creditors have the catch-all 'other' classification that I never use because it is meaningless and provokes enquiry from HMRC; instead I show prepayments/accruals/directors account and other relevant headings.  However if this is what goes to the public record then I am sure that "other" will be used a lot more and hard luck to HMRC and the shareholders.

These are considerations that will have to be discussed with every client adding time and complication to a system that was most definitely not broken.

And John_Griffey raised my exact thought;

"Is the related party note actually a balance sheet note?"

I would go further to suggest that related party notes will be cut to what each preparer considers to be the bare minimum, if they are to go onto the public record.  Perhaps at the moment we don't worry about disclosing too much information within this note because the accounts are private.  Again, this will change.

I appreciate that things change from time to time but these changes may not turn out to be an improvement for the company owners or others who get to see the full set of accounts, such as HMRC and lenders.

Thanks (0)
avatar
By qad999
19th Nov 2015 11:50

more accounting masturbation

by people who cannot see the wood for the trees

Thanks (1)
avatar
19th Nov 2015 13:07

and another thing or two ...


The balance sheet notes required in 'filleted accounts' would include Reserves and Reconciliation of Movements in Shareholders' Funds.  Both show the dividends paid during the financial period.  This will be popular with politicians and celebrities who trade through small companies.

A PBSE does not necessarily involve balance sheet items so any PBSE note may need to be 'filleted'.

Thanks (0)
19th Nov 2015 13:27

tax implications

we have had some tax disclosures to make to HMRC where taxpayers have manipulated the accounts. eg put large amounts of income down as a loan on which no tax was payable. I dont think this will bring these issues out for most small entities but could have a small impact and could trigger alarm bells for HMRC where accounts are not qualified. 

Rebecca Busfield

http://www.wattbusfield.co.uk/meet-the-partners/

Thanks (0)
19th Nov 2015 16:42

The changes sound big to me

Abbreviated Accounts are being abolished, so I would say this is a big change.

For any accounting period starting on or after 1 January 2016, firms will only be able to prepare one set of accounts for all the various users and/or stakeholders. Whatever they file at Companies House will either be that set of accounts or certain parts of those accounts (i.e. the filleted version).

So if you go the FRS102 route, and the Balance Sheet you send to the Directors contains 20 notes including information on profits and dividends paid, then those same 20 notes will need to appear on the (filleted) accounts filed at Companies House.

Alternatively you can go the FRS 105 route (if the company is small enough), which means far less information is made publicly available. So firms may choose to adopt this standard purely because the old Abbreviated Accounts option (with its own separate notes requirement) is no longer available.

If a firm chooses to adopt FRS 105 they will need to follow the rules set out in that standard - for example, using the historic cost basis and no longer recognising Deferred Tax. So they may also have to restate the comparative figures in their accounts to make them FRS 105 compliant.

If they don't want to do this (perhaps because they don't want to strip out asset revaluations from their Balance Sheet) they'll need to follow FRS 102 and disclose more information to Companies House...

So this is an important part of some very big changes.

(PS. In the interest of full disclosure, I work for Gbooks - a software company. Please feel free to PM me if you need further information about the above.)

Thanks (2)
avatar
24th Jan 2017 14:42

Hmm

We use Digita. I have just tried to file abbreviated accounts at Companies House for 1 May to 30 September 2016, short period due to cessation.

The accounts were rejected and the error I got was "Abbreviated accounts may only be submitted for accounting periods commencing prior to 1 Jan 2016."

So what now? File the full set?

Thanks (0)
avatar
to petestar1969
25th Jan 2017 14:56

Filleted new format FRS 102 1A accounts will suffice or full accounts if you wish as long as not FRSEE 2015

Thanks (0)
22nd Feb 2017 10:43

I have read this article several times over several weeks.

There are BIG changes. Abbreviated Accounts cannot be filed for periods starting on or after 1 January 2016. That does not mean years ending on or after 31 December 2016. A short period starting on or after 1 January 2016 will catch you out.

As the author has said, there are big changes. A lot of the commentators above have completely missed the point of the article. You must now file at Companies House what is prepared for the members (with the option to fillet some of the pages and notes out of the full set). You cannot produce a special abbreviated set of accounts based on the numbers in the full accounts. You must file exactly the same Balance Sheet and exactly the same notes (with no editing to reduce / consolidate / change those notes) as the members' full set of accounts.

There is the option not to file the Profit & Loss Account and not to file the Directors Report. You can also exclude certain notes to do with specific disclosures of lines to the Profit & Loss Account e.g. turnover and tax charge. However, ALL other notes to the accounts, even if added to be helpful to the members Full Accounts, through over-disclose, must be included in the filed set at Companies House. Therefore, e.g. related party transactions, controlling party, ALL Balance Sheet notes and ALL accounting policy notes must be included in the filed set.

You literally 'fillet' the full accounts by removing pages (if you chose not to file the Profit & Loss Account and not to file the Directors Report) and also remove any notes directly related to the P&L Account.

You can produce a 'tidy' set for filing by updating note and pages numbers to deal with any filleted (removed) pages & notes.

All the above assumes that the Company is 'small' under Companies Act 2006 and therefore must prepare Full Accounts under FRS 102 (section 1A for small companies).

A second option, if applicable to the smallest of small companies, defined as 'Micro-Entities', is to prepare a very simple set of FRS 105 Accounts, for the Member, with P&L and Balance Sheet, and optional Director Reports, with absolutely no notes. Again, you file at Companies House exactly what you produce for the members, with the option to fillet out the P&L Account and Directors Report (if this is even prepared for the members). There are some extra disclosures that must be included at the foot of the Balance Sheet for advances to and guarantees given for directors, capital commitments & contingent liabilities. The latter are not 'notes', but extra disclosures to the foot of the Balance Sheet.

There is a third option to prepare, and of course file at Companies House, 'Abridged Accounts'

Therefore, to summarise, you file at Companies House exactly the same full accounts that you produce for the members, with the option to fillet out Directors Report, P&L Account & directly related P&L Account line notes.

You cannot therefore fillet out all those other notes added to be helpful or for truth and fairness.

One option that I've adopted in my firm, especially for the extremely short and unhelpful 'consolidated' FRS105 Micro-Entity Accounts is to add 'management pages' to the back of the Full Accounts. They are not part of the Full Accounts, not referenced in the Accountant's Report, but simply printed out as extra pages. They include a traditional Detailed P&L Account showing the make-up of the cost of sales, overheads & interest etc, but also several helpful Balance Sheet notes (Fixed asset, Debtors, Creditors and P&L reserve movement note, incorporating dividends paid. As the latter pages are not part of the Full Accounts they do not need to be filed at Companies House.

Thanks (0)
avatar
23rd Feb 2017 15:48

The whole thing is a farce.....

Just tried to file S.444 accounts online with Companies House. You can't until after Summer 2017. They want all accounts on PAPER can you believe. You can't file abridged accounts either - so back to paper and wet ink signatures we go.......

Thanks (1)