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FRSSE: The end of the line

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25th Mar 2014
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UK GAAP is currently undergoing the most significant overhaul in a generation with the introduction of FRS 102 becoming mandatory for accounting periods commencing on or after 1 January 2015, explains Steve Collings.

In addition, there are some consequential amendments to the FRSSE (effective April 2008) which form the FRSSE (effective January 2015) and also the EU Accounting Directive which was introduced at the end of 2013 and significantly revises the small companies regime in terms of a vast amount of reduced disclosures.

So with all this change, what does the future hold for the beloved FRSSE? 

It was always the intention of the Financial Reporting Council (FRC) to revisit the FRSSE once FRS 102 had taken effect to ensure that there are no significant variations between the FRSSE and the new UK GAAP. At present, FRSSE (effective January 2015) has only experienced limited amendments including the reduction of the presumed economic life of goodwill and intangible assets from 20 years to five years where management are unable to reliably assess the useful economic life of such assets; inclusion of revised terminology and removal of references to FRSs/SSAPs/UITFs and FRSSE (effective January 2015) now includes a specific requirement for entities to annually assess whether there are any indicators of asset impairment.

When the new EU Accounting Directive, which was approved in June 2013, is included in companies’ legislation it will introduce major changes to the way in which small companies report their financial information. This new directive has been the subject of much debate in the profession and despite the significant disclosure reductions which the directive brings, the response to the new regime has been somewhat unsupportive. Many in the profession argue that the reduced disclosure levels simply do not achieve the true and fair concept due to the ‘deeming provisions’ which essentially state that if the accounts are prepared under the micro-entities regime, the accounts are deemed to give a true and fair view. 

Notwithstanding the lack of support the micro-entities regime has received, once it is incorporated into UK company law, it is going to mean the FRSSE will need substantial amendments. The government has until July 2015 to transpose the new EU Accounting Directive into company law and so the FRC has the task of outlining how small companies in the UK will report financial information.

The tentative view of the FRC is to withdraw the FRSSE in its entirety. Given the fact that the new EU Accounting Directive brings about substantial reporting changes, withdrawing the FRSSE would be a valid option for the FRC. The issue that the FRC is faced with is ensuring that financial reporting in the UK remains consistent across all entities so if the FRSSE is withdrawn, small companies would be brought under the scope of FRS 102. The FRC is considering revising FRS 102 to include specific requirements for small and micro-entities which would reflect differing legal requirements, especially where disclosure issues are concerned. Under FRS 102, there is currently no option for entities reporting under that standard to not prepare a cash flow statement (as the cash flow statement form a ‘complete’ set of FRS 102 financial statements and thus is mandatory) and so FRS 102 would include an exemption for small companies from preparing a cash flow statement and group accounts. Essentially it would seem we may be heading in the direction of an FRS 102 ‘light’ for small and micro-entities.

The option to bring small companies under the scope of FRS 102 and have separate sections which would stipulate the differing legal requirements for small and micro-entities would result in consistent recognition and measurement requirements but clearly such companies would not make as much disclosure as medium and large companies reporting under FRS 102 which is sensible and so it is likely that if this is the way forward for UK GAAP, this would be the outcome.

The FRC is seeking comments from users of the FRSSE to inform the thinking of the FRC and it has also confirmed that it is likely an exposure draft will be published in June 2014 on the way forward. 

Steve Collings is the audit and technical partner at Leavitt Walmsley Associates and the author of ‘Interpretation and Application of International Standards on Auditing’.

Replies (5)

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By suepalterman
26th Mar 2014 13:31

To FRSSE, or not to FRSSE

"The option to bring small companies under the scope of FRS 102 and have separate sections which would stipulate the differing legal requirements for small and micro-entities ......"

So the choice is FRSSE re-written to take account of FRS 102; or FRS 102 FRSSEed for small companies and the results scattered in sections amongst the 'big boys'.

Major changes are coming either way, but will what is required of small companies be significantly different depending on which route is taken? .. or just the ease of finding out what is required? 

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By GuestXXX
17th Mar 2015 16:17

.

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By Edward Beale
27th Mar 2014 12:56

Is change necessary?

The test for the FRC is whether the law changes are so great that it is better to rip up the FRSSE and introduce FRS 102 light, or whether it would be more proportionate to retain and amend the FRSSE.

If the accounts are going to look substantially the same as they do at present, then this is unlikely to justify the cost of introducing a totally new rule book.

Consistency with FRS 102 is a "nice to have" not a "need to have".  It is not as if the FRSSE is not currently fit for purpose.

 

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By carnmores
30th Mar 2014 19:14

its all a complete waste of time
All this navel gazing

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Replying to Raj Accountancy:
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By redboam
16th Apr 2014 11:02

Sledgehammer and Nut

Agreed - What seems to have been forgotten are the cost burdens to small businesses of complying with changes in the rules that often appear to be motivated by nothing more than the regulators trying to justify their existence.

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