Matt Bailey looks at the factors companies and their accountants should consider, and also looks at the practical issues of filing with Companies House and HMRC as they struggle to adapt their systems to the new standard only released in July of last year.
FRS 105 can be used, right now, to produce accounts for small companies. While not yet mandatory, it can be used voluntarily for accounting periods with a 2015 start date. So many accounts ending 31 December 2015 can be produced using the new standard.
So should you stick with FRSSE for one last year, or should you bite the bullet and adopt early?
What are the benefits to a company of adopting FRS 105?
The main benefit is the reduced public disclosure requirement versus the existing Abbreviated Accounts framework. The new balance sheet format requires only the main headings (e.g. “Current Assets”) to be displayed, so the balance sheet of a small company under FRS 105 may only be a few lines long (i.e. “Fixed Assets, “Current Assets”, “Creditors Under One Year” and “Capital and Reserves”).
The company then needs to disclose benefits to directors, and (more rarely) any off-balance sheet guarantees and commitments. So in many cases the accounts filed at Companies House will fit onto a single page.
What about the benefits of adopting FRS 105 to the accountant?
From a time perspective, if you stick with the existing framework you may well add figures to your FRSSE accounts that need to be reversed the following year. This will apply to deferred tax (included under FRSSE but not permitted under FRS 105), development costs (which can be capitalised under FRSSE but must be expensed under FRS 105), and investment properties (which must be restated from market value to cost less impairment and/or depreciation).
So not only will you spend time and effort calculating these figures for the 2015 accounts, but you’ll spend more time reversing or reworking the figures and restating your comparatives when the new standards become mandatory the following year.
So let’s say you take the plunge and adopt FRS 105 early. You produce accounts in the new format and restate the comparatives to make them FRS 105 compliant. Will you be able to file them?
Three things need to be in place to complete the compliance process - the new standard needs a suitable XBRL tagging library, Companies House must to be able to accept FRS 105 accounts, and HMRC’s system needs to be ready to read the (XBRL-tagged) FRS 105 accounts attached to the CT600 submission.
First the good news; the Financial Reporting Council decided at the end of last year that FRS 105 accounts can use the existing FRS 102 tag library issued in September 2014. The taxonomy was updated in December 2015, mainly to introduce a new tag to mark the accounts as “Abridged” as permitted under FRS 105.
The news is more mixed with Companies House. If you want to file your FRS 105 accounts electronically you’ll need to wait, as Companies House is yet to update its system to accept the new taxonomy and scan for the correct statutory format, exemptions and statements. Companies House is reluctant to give a date when this work will be completed - it’s unlikely to take place before April, but should be complete by the end of June.
You can, however, join the 30% of companies that still file their accounts in paper format if you need to file earlier.
So what about filing the CT600?
Unlike Companies House, HMRC does not offer the option of filing the CT600 (or attached accounts) in paper format, and as a result there’s more urgency to upgrade its electronic system. HMRC is on course to roll out this upgrade in April 2016, at which point FRS 105 accounts can be attached to CT600 submissions.
So should you be an FRS 105 early bird? It needs to be considered and offered to qualifying clients; bearing in mind directors may prefer the lower disclosure requirements of FRS 105 versus Abbreviated Accounts. It may also save accountants the time and trouble of creating accounts that will need significant adjustments when the firm is forced to switch to the new standard in a year’s time.
From a practical perspective, the new standards are causing headaches for Companies House and HMRC, not to mention software developers. But you’ll be able to complete the compliance process for early FRS 105 accounts without too much delay, and certainly well before the relevant filing deadlines.